How Much More Is Mortgage Payoff Than Balance?
Understand why your mortgage payoff amount is more than your balance. Learn how to accurately calculate and obtain your official quote.
A mortgage payoff amount represents the total sum required to fully satisfy a home loan, differing from the principal balance listed on a monthly statement. The balance on your statement reflects the loan amount remaining after your last payment, but it does not account for accrued interest or various fees. The payoff amount provides a precise figure needed to close the loan, encompassing all outstanding charges up to a specific date.
Components That Increase Your Payoff Amount
Several components contribute to the difference between a mortgage’s principal balance and its payoff amount. Accrued interest is a significant factor, as mortgage interest typically accrues daily, even if payments are made monthly. This means that interest continues to accumulate between your last payment and the exact day you intend to pay off the loan. The “per diem” interest, which is the daily interest charge, is calculated by dividing your annual interest rate by 365 days and multiplying it by your current principal balance.
Lender fees are another common addition to the payoff amount. These can include administrative costs such as a reconveyance fee, which covers the cost of releasing the lien on your property once the loan is satisfied. Other potential fees might include statement fees, wire transfer fees, or fax fees, depending on the lender and how the payoff is processed. Some mortgages may also include a prepayment penalty if the loan is paid off early, which can be a percentage of the remaining balance or a fixed amount.
The handling of your escrow account, which holds funds for property taxes and insurance, also influences the final financial figures. While the positive balance in your escrow account is not added to your payoff amount, any shortage in the escrow account might be included in the total needed to close the loan. Conversely, if there is a surplus in your escrow account after the loan is paid off, the lender will refund that amount to you separately, rather than subtracting it from the payoff total.
Calculating Your Payoff and Obtaining an Official Quote
Lenders calculate the mortgage payoff amount by accounting for the principal balance, accrued interest up to the specified payoff date, and applicable fees. This calculation factors in the daily interest accrual to determine the exact amount owed on a particular day. The resulting figure is provided in an official document known as a payoff quote or payoff statement. This document guarantees the amount needed to fully satisfy the loan by a certain date.
To obtain an accurate payoff quote, borrowers request it directly from their mortgage servicer. This can be done by calling the lender’s customer service, submitting a request through their online portal, or sending a written request. You will need to provide your loan number and specify the desired payoff date, which allows the lender to calculate the precise amount of interest that will have accrued.
Official payoff quotes are valid for a limited period, typically 10 to 30 days, though some can be as short as seven days. This expiration date is included because daily interest accrual means the total amount owed changes over time. If the loan is not paid off by the specified “good-through” date, the quote will expire, and a new statement will be necessary to determine the correct amount due.
The Importance of Your Payoff Date
The specific date chosen for your mortgage payoff holds financial importance. Interest accrues daily, so paying off your loan on a date different from the one specified in your official payoff quote will alter the final amount due. For example, if you pay a few days later than the quoted date, additional interest will have accumulated, meaning the amount you send may be insufficient to fully close the loan.
Official payoff quotes include a “good-through” date, indicating the last day the stated amount is valid. If the loan is paid off after this date, the quote becomes inaccurate, and a new one must be obtained. This new quote will reflect the additional accrued interest, meaning the required payoff amount will be higher.
Pay the exact amount specified on the official payoff quote by the “good-through” date. Sending an amount less than what is due could result in the loan not being fully satisfied, potentially incurring late fees or requiring further payments. Conversely, an overpayment would necessitate a refund process from the lender, which can take time to process.