It’s a glorious day when the home mortgage is paid off. No longer does the bank have a claim on your home. You are the sole owner. Getting to that point takes time and payment after payment. Many people don’t live long enough to see that day, and others see it quite often as they pay off the mortgage every time they refinance the home.
However, calculating the payoff amount is a confusing mathematical formula that most homeowners don’t even want to think about, much less do. In addition, the loan balance and the payoff amount are not the same. Calculating interest in arrears accounts for some of the difference while late payments penalties, early payoff penalties, and liens are other possible sources of the discrepancy.
The first step is to call the mortgage company who has your home loan and ask for a payoff statement. They will ask for a specific date in order to calculate the interest. Also for the current balance and loan’s interest rate. This way you can compare what you’ve been told with what is in writing. If there is a discrepancy, call the mortgage company back and ask for clarification.
There are several free mortgage payoff calculators online. Armed with the mortgage balance and the interest rate, it’s possible to double check the mortgage lender’s payoff statement.
Some banks will apply the money in the escrow accounts toward the payoff balance and others will wait until the payoff has been received and cleared and will issue a check for the remaining escrow funds.
Most lenders require a certified check for the payoff. If so, it’s a good idea to send the check via overnight mail in order not to accrue more interest. Regular mail takes a few days which will make the interest mount up quickly and cost more than the shipping cost to overnight the check. If paying by wire such as Western Union, the transaction is complete within an hour and the money is immediately available. Electronic transfers of money may or may not be available immediately, but if you by chance overpay, a refund will be mailed to you.
If you’re really old school or just enjoy math, the following equation will work. Good luck.
Loan Balance X Interest Rate = x
x / 365 days of the year = Daily Interest
(Days until Payoff X Daily Interest) + Loan Balance = Payoff Amount