How does a mortgagee calculate a payoff balance when the mortgager wants to pay off their loan early?
A mortgage payoff consists of two things and maybe a third: 1. Unpaid balance: the amount of the original loan that you haven’t paid back as of your last recorded mortgage payment. 2. Interest per diem: This is a little more complicated. Mortgage payments contain interest but in arrears (they are for the use of the banks money in the prior month). In other words, the payment you make on September 1st covers August interest. Your September payment brings your account current to September 1st, not to September 30th as you might expect. If you want to payoff your mortgage on September 25th, the bank will give you a statement which includes the unpaid balance plus 25 days of interest for September. 3. Escrows: If you pay taxes and/or insurance along with your mortgage payment, the bank will usually credit the amount in that account toward your payoff and send you a net figure (they just keep the escrow fund as part of the payoff.) Some banks keep the escrow fund until your payoff clears (t
