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Why is my mortgage payoff amount higher than my balance? I was asked this question from my clients on a refinance more than any other one.

Your payoff amount is not the same as your mortgage balance. You know what your balance is because it is on your statements. You may also see some verbiage on your statements like “this amount is not your payoff amount” or something to that effect and you don't think much of it.

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Until, you decide to refinance or sell and while looking at all the numbers on your loan documents you discover the payoff amount is higher than what you saw on your statements and you think, “This must be some kind of mistake.”

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What’s going on? It doesn’t add up.

Mortgages are paid in arrears. That means when you make your July payment, you are paying for June's interest.

Mortgage companies and banks calculate their payoffs by giving a per diem amount which is a daily interest amount. For example, if your loan closes on July 31st, the payoff amount has to include 31 days of interest for July because the payment you made on July 1st only covers June's interest.


July 31st closing date (made July’s payment)
$100,000 mortgage balance
$25 per diem
31 days in July X $25 per diem = $775
$775 + $100,000 = $100,775 payoff amount

If you close on July 10th and you did not make your July mortgage payment, the payoff amount would include 30 days of interest for June and 10 days of interest for July.


July 10th closing date (didn’t make July’s payment)
$100,000 mortgage balance
$25 per diem
30 days in June X $25 per diem = $750
10 days in July X $25 per diem = $250
$750 + $250 + $100,000 = $101,000 payoff amount

An FHA mortgage payoff includes all of the month's interest no matter when you close.

But wait there’s more, the title company adds about 7-10 days of extra interest to make sure there is a buffer in case the payoff does not make it to the lender in time. But that rarely happens so the buffer of 7-10 days gets returned to you from your old mortgage lender after the loan is paid off.

How do you calculate a payoff amount?

Even after all the mortgages I originated and processed, I do not have a clue how to calculate a payoff amount without a payoff statement. However, I did have a trick that worked 99% of the time.

Add a mortgage payment to your balance.

Use the whole payment even if includes taxes and insurance and that will come pretty close to your actual payoff amount. I'm sure there is some fancy way of figuring this out but this is fast and easy and it actually works if you are in the early stages and don't have a copy of your payoff statement.

What should I look for on the payoff statement?

The title company or your processor will order your official mortgage payoff statement. You can order one too online or by calling your lender but it's just easier to have them do it because there is a fee for the statement which is added to the payoff amount. You don't want to keep ordering payoffs and their system may not even let you. If it is within a certain time frame the mortgage or title company can just get an updated letter but again it's just best to let them handle it.

Here are the 5 things they will all have on them.

1. principal balance
2. per diem amount (daily interest amount)
3. interest through the payoff good through date (the date the payoff number is good through)
4. the payoff statement fee
5. the payoff amount

The payoff statement fee is about $30 or so. They usually have a copy of it the same day they order it and you can ask to see it. There will also be a recording fee in addition to the statement fee and the lender may also include additional fees like a fax fee even though you can get almost all payoffs online these days.

If you close after the good through date, the title company will add the additional days of interest past the good through date to the payoff amount.

And remember, an FHA payoff statement's good through date is always the last day of the month. If you go past that date, you will have to order another payoff statement. If your FHA payoff is good through June 30th and you miss your closing date but close on July 6th for example. The new FHA payoff statement will include all the July's interest even though you are closing in the first week.

You may close much earlier than the payoff good through date and that means you have a surplus of days of interest in the payoff amount. Or, like in the example above, your FHA payoff included days of interest after you closed. Any surplus gets returned to you after your old mortgage is paid off.

I hope this helps!

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