Prepaid Expenses
Direct definition
Prepaid expenses are upfront costs collected at closing to fund items like homeowners insurance, property taxes, and prepaid interest.
Written by the Vabasso Mortgage Editorial Team · Reviewed against agency and federal sources · Read our editorial policy for how we research and review mortgage content
Plain-English explanation
Beyond the closing costs tied directly to originating the loan, borrowers typically fund an initial escrow cushion and pay for the first year of homeowners insurance, along with prepaid interest. These are separate line items from lender or title fees.
Why it matters
Prepaid expenses can add a meaningful amount to cash needed at closing, so borrowers should review the loan estimate carefully rather than focus only on closing costs.
Where you may see it
- Loan estimate
- Closing disclosure
- Cash-to-close summary
A real-world example
Educational and illustrative only
A common misunderstanding
Prepaid expenses are not fees paid to the lender — they fund your own insurance and tax obligations in advance.
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- Author
- Vabasso Mortgage Editorial Team
- Reviewed by
- Vabasso Mortgage Licensed Advisory Team
- Last reviewed
- July 30, 2026