Specifically i would like to know why it is different than the principle balance, i can only expect it will be higher than the principle balance? But generally speaking how much higher? I know i will be contacting my bank to find out the exact amount, so please dont suggest that. In the meantime i would just like to learn some general information payoff balances, what economic impact paying off my loan has on the financial institution, and how they can justify asking for a different amount to pay off the loan.
2007-02-18 14:18:20 · 9 answers · asked by SnowXNinja 3 in Business & Finance ➔ Renting & Real Estate
If you understand that lenders charge interest in arrears, then you will easily get the concept.
Notice how when you close on a loan that you skip a payment? Well, you don't actually skip the payment. Mortgage interest is charged after the fact. So the mortgage payment you make in February is the interest that accrued in January. Therefore, when you order a payoff, you are getting a statement that includes:
1. The principle balance.
2. Accrued interest.
3. Pre-pay penalty, if applicable.
4. Admin fee, if applicable.
Hope this solve the riddle for you!
2007-02-18 14:25:26 · answer #1 · answered by David 3 · 2⤊ 0⤋
The payoff balance is simply the principle loan amount plus the finance charges (interest) that has been accrued on the day (depending on the institution from which the money was borrowed it can be other measurements of time like week, month or quarter) the payoff is to take place.
Yes, it will be higher than the principle balance because it takes interest into account.
I'm not a mortgage loan officer, but I don't think the insititution could legally require you to pay another amount. In effect, you signed a contract that the loan would be charged a certain amount of interest. If they were to calculate another payoff, based on a different rate, that would violate your contract with them.
When you took out your mortgage, you signed a contract agreeing that it would be subject to fees. Fees include interest (or finance charges, they are all the same, just different names) as well as other costs that the institution may incur as part of processing your loan. There may be an early payoff fee included in the contract. You may want to consult the mortgage paperwork (the fine print) to see what, if any, these fees may be. If you have an attorney that handles these things, s/he would be the right person to talk to.
2007-02-18 14:34:34 · answer #2 · answered by hcps_boxer 3 · 1⤊ 0⤋
A payoff balance includes the current principle balance plus the interest accrued up through the payoff date, plus any fees. You will notice that when you order a payoff, the payoff will be good up to a certain day. They will also list a per diem, which is additional interst to add for every day past the good through date. Also remeber that mortgage interest is paid in arrears. Example, your March payment will cover February interest. When you close on a mortgage, you will skip the following month, so you are always paying the prior months interest.
2007-02-18 14:30:31 · answer #3 · answered by Gary N 2 · 1⤊ 0⤋
The payoff balance is the total of the remaining principle PLUS whatever interest has accrued since your most recent payment.
The financing institution looses out on the rest of the interest the loan would have accrued if you'd continued to take the loan to term. Some places also have a "early payment penalty"- I suspect it's a way to get back at customers who pay off the loan early, preventing them from charging all that interest...
2007-02-18 14:31:01 · answer #4 · answered by Yoda's Duck 6 · 0⤊ 0⤋
a payoff is more because it includes the interest that you owe for the month that is remaining in order to pay off the balance. Most of the interest is collected in the 1st 5 years of the loan which is why as you get closer to paying off the house the difference bet the payoff and the actual balance is closer.
2007-02-18 14:31:35 · answer #5 · answered by S A 3 · 0⤊ 1⤋
If your bank doesnt charge penalties for an early payoff that would be great. Payoff Balance means they will knock off the interest for the rest of the term. Didnt you get a itemized Payment sheet showing how much was going to principal and how much to interest when you set up this mortgage? If not email me and I will get you one. fort_bragg_girl@yahoo.com
2007-02-18 20:23:12 · answer #6 · answered by Anonymous · 0⤊ 1⤋
The payoff balance is the principal plus the interest that has accrued to the unpaid principal balance until the account is paid in full. If your payment is on the 1st (which you made) and you pay off your loan on the 10th, the payoff balance is the principal balance as of the 1st and the interest that has accrued from the 1st to the 10th.
2007-02-18 14:24:22 · answer #7 · answered by Anonymous · 2⤊ 2⤋
A payoff balance will often be the payoff including any additional fees: ie. loan disposition fee, early termination fee, pre-payment penalty, etc.
Depends on the loan, and the lender used.
Hope this helps,
Cameron
P.S. Find more help with your real estate questions at the following real estate forum: http://www.homefindinginfo.com/realestateforum/default.asp
2007-02-18 14:29:14 · answer #8 · answered by bmwdlr 2 · 1⤊ 0⤋
Payoff Balance = Principal balance + Interest owed.
2007-02-18 14:27:55 · answer #9 · answered by stone 3 · 0⤊ 1⤋