What Is a Loan Payoff Letter and How Do You Get One?

A loan payoff letter is an official document from a lender that specifies the exact amount required to fully satisfy a loan on a particular date. Its purpose is to provide a precise and legally binding figure for closing out a debt, ensuring a borrower knows the definitive sum needed to complete their financial obligation. This prevents unexpected charges or remaining balances. Unlike a regular monthly statement, which only shows the current balance, a payoff letter accounts for future accrued interest and fees. The exact amount due changes daily as interest accumulates, making a payoff letter essential for an accurate final payment.

Understanding Loan Payoff Letters

Borrowers often require a loan payoff letter in several key scenarios. When selling a property, especially one with an outstanding mortgage, the buyer’s title company will need this letter to ensure the existing lien is cleared during the transaction. Similarly, if refinancing an existing loan, the new lender will request a payoff letter to determine the precise amount to send to the previous lender, streamlining the closing process. Furthermore, individuals making a final, lump-sum payment to close out a loan, such as an auto loan or personal loan, rely on this letter to avoid underpayment or overpayment.

Components of a Payoff Letter

A typical loan payoff letter includes several specific pieces of information for accurate loan closure. It specifies the exact payoff amount, which represents the total sum required to fully satisfy the loan, including principal, accrued interest, and any applicable fees or charges. This amount is valid until a specified “good-through” date, also known as the payoff date or expiration date. If the payment is not received by this date, the payoff amount will change, necessitating a new letter.

The letter also details the per diem interest amount, which is the daily interest accrual after the good-through date. This figure allows for precise calculation if the payment is made a few days after the specified date, ensuring all interest is covered. Lenders also include the loan account number, which helps ensure the payment is applied to the correct loan. Additionally, the letter provides the lender’s contact information and detailed instructions for submitting the payoff amount, such as mailing addresses for checks or wire transfer details. Any additional charges, like processing fees or prepayment penalties, will also be itemized in the letter.

Requesting and Utilizing Your Payoff Letter

To obtain a loan payoff letter, borrowers typically contact their lender directly. This request can often be made through various channels, including a phone call to customer service, an online portal if available, or a written request. When requesting, it is important to provide the loan account number and the desired payoff date to help the lender process the request efficiently. Lenders are generally required to provide a payoff statement within seven business days of a request, though processing times can vary, sometimes taking between five to ten business days. While many lenders provide this service without charge, some may impose a modest fee, particularly for expedited requests or specific delivery methods like fax or email.

Once the payoff letter is received, the borrower should carefully verify all the information against their personal records, especially the payoff amount and the good-through date. The payment must be made precisely as instructed, ensuring it arrives by the specified good-through date to avoid any discrepancies due to additional accrued interest.

After the payment has been sent, it is important to take steps to confirm the loan has been fully closed. This includes requesting a lien release document from the lender, especially for secured loans like mortgages or auto loans. For real estate, the lender typically records a satisfaction of mortgage with the county, which can take several weeks or even months to process. For vehicles, the lender will release the lien, and the state’s Department of Motor Vehicles will then issue a clear title, a process that can take two to six weeks. It is also advisable to check one’s credit report after a few months to ensure the loan is reported as “paid in full,” confirming its successful closure.