This question comes up during just about every refinance transaction. Clients want to know why their mortgage payoff is higher than the principal balance reflected on their most recent mortgage statement.
The answer: Your mortgage loan payment is paid in arrears. Therefore, when you make your June payment, you are actually paying the interest from the month of May. For that reason, the days of interest you have not yet paid will be added to the current principal balance when your payoff is calculated by your loan servicer.
Remember when you closed on your house and your loan officer said you would be skipping a month’s payment? This same principal applied. You pay the interest from your closing month, let’s say May, at settlement. You do not make a payment in June, and then, in July, you will pay the interest on the loan from the month of June. You will continue in this manner for the life of the loan, always paying the previous month’s interest when you make your mortgage payment.
In addition to days of interest you haven’t yet paid, there may be additional fees included in your payoff from your loan servicer, including
- transaction fees
- unpaid late fees
- prepayment penalties
You can estimate that the payoff will be your principal balance plus one month’s payment.
If you are interested in purchasing or refinancing in one of the following states, please contact me and I will be happy to connect you with a licensed loan officer in your state: Maryland, Delaware, Connecticut, Florida, Georgia, Maine, Massachusetts, New Hampshire, New Jersey, North Carolina, Pennsylvania, Rhode Island, South Carolina, Washington D.C., or West Virginia.