Maryland Home Improvement PSI Practice Exam

What adjustment is made at closing when a buyer assumes a mortgage with a monthly interest of $600, and the seller paid on June 1?

1. Credit seller $300; credit buyer $300.

2. Debit seller $300; debit buyer $300.

3. Credit seller $300; debit buyer $300.

4. Debit seller $300; credit buyer $300.

The correct answer is: Debit seller $300; credit buyer $300.

When a buyer assumes a mortgage and the seller has already made the payment for that month, it is necessary to adjust the closing statement to reflect the allocation of interest between the seller and the buyer. In this scenario, the seller made the mortgage payment on June 1, which covers the interest for June. Since the buyer assumes the mortgage and will occupy the property during this period, they are responsible for a portion of June’s interest for the days they own the property. In this case, with the interest amount being $600 for the month, if the closing occurs midway through the month, the buyer should be credited for the portion that covers the days they will be responsible for, which is typically half the month if the closing is around the middle. Thus, the adjustment is made by debiting the seller, reflecting that they should take back a portion of the interest they have already paid for the days that the buyer will also benefit from. The buyer is then credited the same amount for their use of those days. This accurate adjustment ensures that both parties only pay for the time they own or occupy the property. Therefore, in this situation, the seller is debited $300 (to recover half of the month's interest already paid), while the buyer