After paying off your mortgage for a long time, you might begin to wonder how much is still owed. It’s possible that after examining your current balance, you determine that it’s low enough that you should give the idea of paying off your mortgage entirely some serious thought.
It’s crucial to understand that the amount you see on your current statement does not represent the entire amount owed; instead, you should contact your lender to learn how much your mortgage will ultimately cost.
Many times, people are surprised when the mortgage payoff amount is higher than expected because they forget that it will be higher than their current balance.
Below we look more into mortgages and why the mortgage payoff is higher than the current balance.
Ever wonder why your loan payoff amount is different from your current balance? You’re not alone. It can be confusing, but there’s a simple explanation.
Current Balance vs. Payoff Amount: The Difference
Your current balance is the amount you owe on your loan at any given time. It includes the principal (the amount you borrowed) and any accrued interest.
Your payoff amount, however, is the total amount you need to pay to completely satisfy the loan. This includes:
- Principal: The amount you borrowed
- Accrued interest: Interest that has accumulated since your last payment
- Prepayment penalty: A fee some lenders charge if you pay off your loan early (check your loan agreement for details)
- Other fees: Late fees, NSF fees, or other charges you may have incurred
Why the Payoff Amount Can Be Higher
Several factors can contribute to a higher payoff amount:
- Accrued interest: Interest continues to accrue daily, so the payoff amount will be higher than your current balance even if you make regular payments.
- Prepayment penalty: If your loan has a prepayment penalty, it will be added to the payoff amount.
- Unpaid fees: Any outstanding fees will also be included in the payoff amount.
How to Get an Accurate Payoff Amount
To get an accurate payoff amount, contact your lender directly. They will provide you with a statement that shows the total amount you need to pay to satisfy the loan as of a specific date.
Advice: A few days prior to when you intend to repay your loan, it’s a good idea to request a payoff amount. This will allow you enough time to collect the money and send the payment on schedule.
Additional Resources
- Consumer Financial Protection Bureau (CFPB): What is a payoff amount? Is my payoff amount the same as my current balance?
- RCB Bank: Is a Loan Payoff the Same as Your Loan Balance?
FAQs
- Q: Can I negotiate my payoff amount?
- A: In most cases, no. However, it never hurts to ask your lender.
- Q: What happens if I pay more than the payoff amount?
- A: The extra money will be applied to your principal, which will reduce the amount of interest you pay over the life of the loan.
- Q: What if I can’t afford to pay the payoff amount?
- A: Contact your lender as soon as possible to discuss your options. They may be able to work with you to create a repayment plan.
Remember: Paying off your loan early can save you money on interest. However, it’s important to understand the difference between your current balance and your payoff amount to avoid any surprises.
How much More is the Mortgage Payoff than the Balance?
Borrowers commonly confused the current balance on their mortgage with their mortgage loan payoff. However, the mortgage loan payoff is typically higher than the balance on your monthly statement.
The mortgage payoff will differ depending on the terms of your mortgage agreement. Having said that, the difference is simply the amount of mortgage interest you agreed to pay when you took out the loan.
The lender will continue to add interest to the loan until the payment has been received. The interest will keep adding when you request the amount of your mortgage payoff until you make the payment. This is why the mortgage payoff could change again if you delay your payment.
Additionally, your mortgage payoff can include other fees charged by your lender. The most common items found on a mortgage payoff statement are:
- The principal balance of your mortgage loan.
- The interest is to be paid through the payoff date.
- Daily interest charges for the remainder of the month.
- The payoff statement fee.
- Any relevant escrow shortage or overage.
Why is your Mortgage Payoff Higher than the Balance?
The total amount you owe your mortgage provider after accounting for the terms of the loan is known as your mortgage payoff.
This includes the interest you will be paying and other fees. In essence, this is the total amount that you will pay for your mortgage when you take out the loan.
This is not your current balance because it displays what you have paid thus far, deducting the interest that is owed.
You may believe that you have almost paid off the loan based on your statement, but when you contact the lender, you will learn that the remaining amount is greater than you had anticipated.
The balance on your loan statement is what is currently owed as of the date of the statement. However, interest will continue to accrue each day after that date.
When paying a mortgage off early, it’s possible you can be subject to early repayment penalties.
In the event that the borrower decides to sell the property before the loan is paid off, the lender may charge an early repayment penalty.
Prepayment penalties are typically included in mortgage agreements to prevent the mortgage from being paid off earlier than specified in the agreement.
Your lender will impose a penalty fee to make up for any lost interest if they are unable to collect it from an early repayment.