We received another question from a viewer this week: “Why is my payoff so high?” When selling a home, the seller’s mortgage payoff may seem higher than expected. Sellers are often surprised because they are expecting a figure close to their most recent principal balance.
When notified of an upcoming sale, the mortgage lender will provide a written payoff. The payoff will identify the exact amount that is owed to pay the loan in full. The lender will calculate all outstanding principal, accrued interest, in addition to all other fees and costs due.
Sellers may be familiar with the principal balance shown online or in their last mortgage statement which is only a portion of what is due. For example, the mortgage payment due on November 1 includes the principal and accrued interest in October. The payment includes the interest from October 1 through October 31. If the closing is on November 15 and the payment that was due on November 1 was not paid, the total payoff will be the interest from October 1 through November 15 plus all outstanding principal. If the November 1 payment was made, the payoff will include the principal balance with interest from November 1 through November 15.
Typically, a small cushion is added to the payoff to account for possible delays in processing payment. For example, if the closing occurs on November 15, interest may be collected through November 18. The lender will reimburse the borrower for any overpayment. The payoff usually does not account for funds held in the borrower’s escrow account. In most cases, funds held in escrow for insurance and taxes will be disbursed to the seller within thirty days after the mortgage is paid off.
If you have any questions about selling your home and or your payoff, contact Stiles Law by calling (781) 319-1900.
Copyright © 2019 Stiles Law, All rights reserved. Stiles Law is a Massachusetts licensed law firm and all content is based on Massachusetts law. The information presented above is meant to be used for general informational purposes and it should not be construed as legal advice or legal opinion on any specific facts.