Now Accepting Conforming Loan Limit $803,500
Now Accepting Conforming Loan Limit $803,500
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You are refinancing your mortgage or selling your home , and you see that the payoff amount is higher than the principal balance on your statement. Why don’t the two numbers match up? This is a common question we receive. Here’s a relatively simple answer.
The balance you see on your mortgage statement is the principal balance you owe as of that date, however, the pay-off is what you owe plus interest that accrues from the statement date to a specific payoff date. Mortgages are paid in arrears, which means the amount you pay is for the previous month. For example, if you pay your mortgage on Oct 1, you’re paying for the period of Sept 1 through Sept 30. Your interest on the principal balance is accrued on a monthly basis also, but it cannot be charged until the month ends.
Further example: Suppose your loan balance shows $500,00 as of Oct 1st and your daily interest is $100/day, your total pay-off amount on October 20th (20 Days) would be $500,000 + $100 X 20 days of accrued interest so $502,000. Generally, your current lender will also charge about $200 in processing fees so your total pay-off amount would be around $502,200.
The pay-off statement will also have other important information such:
The payoff statement is a vital document due to the interest on your loan balance, which is added daily. The exact amount due changes based on the terms of your loan, meaning that you can’t just guess the overall amount owed. If you try, you’ll likely fail to pay everything you actually owe, leading to frustration, wait times and complicated communication.
Most lenders these days allow you to order a pay-off statement online free of charge so login to your mortgage portal and see if there is an option to order your pay-off statement. If you are refinancing or selling your home, the Escrow Officer will order this for you but you can expedite the process by ordering one yourself through your lender portal.
We hope that clears up this common confusion! Remember, every effort is made to accurately calculate the amount of interest owed, no more and no less, to ensure that everything goes smoothly on closing day. Still have questions? Contact us today!
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