The Mortgage Brothers Show
Why Is My Mortgage Payoff Higher Than My Mortgage Statement Balance?
One question we get a lot of the time is why is my mortgage payoff higher than my mortgage statement balance? Why is it higher than I thought? Some people have asked us if part of this balance is a markup or overage on our behalf. So, let’s just get that right out of the way. It’s not. The difference is not due to any markup or overage. We don’t keep anything.
So, what gives?
How do mortgage payoffs work?
If you’re refinancing, you can’t just get a loan for the exact amount of your mortgage statement balance. You have to account for interest. We’ve had people call us looking to refinance who will tell us what they owe, but we always advise them right away to make sure that they’re looking at their mortgage payoff, not their mortgage statement balance. It’s a common confusion that happens to a lot of people, which is why we’re here to clear it up.
Your monthly payments are formula driven based on your loan amount, your amount of interest, and when you are paying it off.
I made my payment on time, why is it still going up?
The reason for this is that mortgage payments are paid in arrears. If you look at your statement from your bank, you’ll notice that your payment due date is different than your statement date. That is because your payment at the beginning of, say, July covers the month of June and each day of that month your amount owed accrues interest.
We like to think of it as a stairstep scenario. When you make the payment on the first of every month, every day from there on out your balance goes up, as it accrues interest each day. Because of this, if you charted out the amount you owe on a graph it would look more like a stairstep than a straight, descending line. It escalates up before it drops down again.
How does your closing date impact your mortgage payoff?
Let’s say we close a borrower in the middle of July. They will be responsible for the interest accrued for the rest of the days in the month. Now if we’re refinancing and closing your loan at the top of the month, often title companies will ask for a couple of extra days of interest so that by the time they get their money they are not shorted.
In cases where the closing date is, say, ten days into the next month, you’ll be responsible for that daily interest accrued when paying off your mortgage. There is no way around it. Though it is worth noting that late fees are typically not occurred until midmonth, so we can close a few days into a new month without having to worry about any late fees.
When you close on a new mortgage, as well, is something to consider. If you close near the end of the month, in some scenarios, you won’t be responsible for your first payment until the end of the next month, but you’ll still be responsible for each day’s interest, meaning when it comes time for your first payment there will be a lager out-of-pocket expense.
Regardless, the payoff number you will be responsible for is not calculated by us. It comes directly from your bank. But we want to make sure you are aware of the several layers of interest that can get tacked onto your unpaid principal balance, which is what can make it appear off when you’re looking at your payoff amount. In short, remember that the money the original investor lent you is making that investor money daily and you are responsible for paying that interest off.
Thanks for listening and reading the Mortgage Brothers Show. Let us know if you have any questions you’d like us to answer on this podcast. You can email your questions to Tom@AZMortgageBrothers.com or Eddie@AZMortgageBrothers.com.
Be sure to ask us for a free quote on your next mortgage. We’ll personally work with you and help you through the whole process.
Signature Home Loans LLC does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Signature Home Loans NMLS 1007154, NMLS #210917 and 1618695. Equal housing lender.