What Is a 10-Day Payoff Letter and How to Get It
Master the process of obtaining and understanding the crucial 10-day payoff letter for accurate loan finalization.
A 10-day payoff letter provides the precise amount required to fully satisfy a loan on a specific date, typically within a 10-day window. This document is used in financial transactions like early loan payoffs, refinances, or property sales. It ensures the borrower or new lender remits the exact funds, preventing outstanding balances or overpayments.
Understanding the Payoff Letter
A payoff letter is a formal document from a lender detailing the exact amount needed to pay off a loan in full. This amount often differs from the current balance on a monthly statement, as it includes daily accrued interest and fees. It provides a definitive figure that, if paid by a specified date, marks the loan as “paid in full” and releases the borrower from further obligation.
A payoff letter includes the exact payoff amount, covering the remaining principal, accrued interest, and any fees or credits. It also specifies a “good through” date, indicating when the quoted amount remains valid. The letter outlines per diem interest and instructions on where and how to send the final payment.
Per diem interest is calculated by multiplying the outstanding loan balance by the annual interest rate, then dividing by 365 days to determine the daily interest amount. This daily interest is then multiplied by the number of days from the last payment to the specified “good through” date. For example, a $200,000 loan at 6% annual interest has a per diem interest of approximately $32.88 ($200,000 0.06 / 365).
Requesting a Payoff Letter
To request a payoff letter, borrowers need to provide their lender with specific information. This typically includes the loan account number, full name, and contact information. For real estate loans, the property address is also usually required.
Borrowers should specify the desired payoff or “good through” date. This date is important because the exact amount owed changes daily due to accruing interest. Providing this information allows the lender to calculate the precise payoff figure up to that date.
Common methods for requesting a payoff letter include contacting the lender’s customer service via phone, accessing online portals, or submitting a written request. Many lenders offer online platforms where borrowers can log in and request a payoff statement directly. Alternatively, a phone call to the loan servicer can initiate the request, requiring identity and loan detail verification.
For written requests, a formal letter can be mailed or faxed to the lender, including all necessary account and personal information. Lenders are generally required by federal law to send a payoff statement within seven business days of receiving a written request. Some lenders may charge a small fee for providing a payoff letter.
Using Your Payoff Letter
Once a payoff letter is received, review it for accuracy. Borrowers should verify the loan account number, total payoff amount, and especially the “good through” date. Confirm that all listed fees and accrued interest align with expectations.
The “good through” date indicates the final day the quoted payoff amount is valid. If the loan is not paid off by this date, the amount will change due to additional accruing interest, necessitating a new payoff letter. If a payoff is delayed, the borrower might owe more than the original amount.
A payoff letter is commonly used in financial scenarios like a refinance or property sale. In a refinance, the new lender uses the payoff letter to determine the exact amount to send to the current lender to clear the existing debt. During a property sale, the title company or closing agent relies on the payoff letter to disburse the correct funds to the lienholder, ensuring a clean transfer of ownership.
Properly using the payoff letter ensures the loan is fully satisfied, preventing issues like late fees or lingering claims on collateral. If payment is not made according to instructions or by the specified date, it could lead to complications, including additional interest charges or delays in releasing the lien.