The total amount owed - as shown on a loan statement balance - is almost always lower than the amount required to satisfy the terms of a loan. To figure out how much is owed to completely pay off a loan, a borrower must request a formal loan payoff statement from their lender.
Written by Chiara King.
Updated November 26, 2021
If you need to know the exact payment amount necessary to completely pay off a loan, you’ll need to ask your loan servicer for a payoff statement or payoff quote. This payoff amount will likely not be the same as the current loan balance on your monthly statement. A payoff quote clarifies exactly how much money you’ll need to pay off the loan, including all accrued interest and any fees or benefits allowed by the loan terms. The payoff quote also tells you how long the quoted payoff figure will remain accurate.
Payoff quotes are used frequently in home buying and refinancing transactions, and when creditors pursue collection activity against borrowers who fall behind on their loan payments. By contrast, a loan statement balance usually just indicates how much you owe per month. The overall balance quoted on these statements doesn’t account for interest, fees, penalties, and benefits over the life of the loan in the way that a payoff quote does.
Current Loan Balance and Loan Payoff Amount Are NOT the Same
The current balance on your monthly loan statement is not the same as the payoff amount, which is the amount necessary to completely satisfy the loan and close it out. The payoff amount will almost always be higher than your statement balance because of interest. Interest may accrue on a loan every day between the statement date and the time you intend to pay off the loan. The loan payoff figure will include this interest and any other fees allowed by the loan terms, such as a prepayment penalty.
Online Loan Calculators Are Not Useful for Payoffs
You can’t get an accurate loan payoff figure from an online loan payoff calculator. These payoff calculators are helpful because they can tell you how fast a loan will amortize (get paid off) using the monthly payment, interest rate, and loan term information that you enter. But, they can’t provide you with the exact payoff necessary to close out your particular loan at a specific time. To get that information, you’ll need to request a formal payoff quote from your lender or loan servicer. You can request a payoff quote for any type of loan, including mortgages, car loans, student loans, and personal loans.
Requesting a Payoff Quote
How you will need to go about requesting a payoff quote can vary by lender. You may need to fill out a form, sign into an online system, or call a customer service line. You may need to provide information like your name, contact information, account number, property address (if the loan is a mortgage), the date you want the payoff to be effective, and the reason you’re making the request.
If you’re curious about your payoff amount, but you don’t need it in writing for any particular or urgent reason, you may be able to obtain a verbal payoff quote from your lender by phone. You should treat a verbal quote as just an estimate because it’s not legally binding. If you need a written payoff quote later on, you’ll just need to contact the lender again to obtain one.
Mortgage Escrow Accounts
If you’re requesting a payoff statement for a mortgage, you should also ask about your escrow balance. A mortgage loan’s escrow account contains money that you’ve prepaid as part of your mortgage payment for expenses like property taxes and homeowner’s insurance. You could be entitled to a portion of these escrowed funds after the mortgage is paid off. If you’re going to receive an escrow refund, you should confirm your mailing address with your mortgage lender and ask when you should expect the check in the mail. Depending on the timing of the loan’s payoff, the amount of an escrow refund can be substantial.
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Loan Payoff Statement
A lender’s payoff statement or letter will show the amount you need to pay to completely close out the loan. The statement will generally include the payoff’s expiration date, the address where you need to mail the payment, and whether payment via a cashier’s check is necessary. It may also provide the loan’s interest rate, your outstanding principal balance, your remaining payment schedule, any amount you’ve saved by paying off the loan early, and adjusted payoff figures in case you pay slightly before or after the payoff expiration date.
The payoff expiration date is also called the “good-through” date. It can also be called the “10-day payoff” date because it calculates 10 days of interest accrual from the date of your request and gives you that amount of time to get the payment to the lender if you want to pay off the loan. You’ll have to request an updated payoff quote if you pass the payoff expiration date without paying off the loan. The updated quote will show additional interest that has accrued.
If your payment gets to your loan servicer past the payoff expiration date, you might get billed for additional interest and even a late fee. This is because your lender will keep adding interest to your principal balance until your payoff reaches its payment processing center. If your payment reaches the servicer before the payoff expiration date, you should receive a refund of the excess interest. If you’re able to make your payoff electronically, this can reduce the unpredictability that comes with using regular mail.
You aren’t required to pay off a loan just because you request a payoff statement. Even though requesting a payoff quote is typically the first step to paying off the loan, your request doesn’t obligate you to follow through with a payoff.
Other Common Uses for Payoff Statements
Loan payoff statements can be useful for a variety of reasons. Sometimes borrowers need a payoff statement just because they want to pay off their loan. Title companies need mortgage payoff quotes if a mortgaged house is being sold so that the correct amount gets paid to the seller’s mortgage holder. Also, homeowners seeking to refinance their mortgage or borrowers looking to consolidate debt will need to get payoff statements so the new lender can pay off the old loans.
Sometimes borrowers receive payoff statements when a creditor steps up collection activity. For example, a creditor may send you a payoff statement along with a notice that your debt is being sent to collections, or one may accompany a lien notice telling you that the creditor has made a legal claim on your property to ensure repayment of the loan. State law determines the exact content and disclosures required on these notices, but the lender should at least tell you the loan’s account number and the total amount due.
The current remaining balance on a loan statement will not tell you the amount of money necessary to pay off the loan. The payoff amount is generally higher than the current loan balance because it includes interest added to the loan between the statement date and the payoff date, as well as any other fees allowable by the loan documents.
You will need to request a written payoff quote from your loan servicer to clarify this payoff amount. The payoff quote will provide you with the amount you’ll need to pay by a certain date to completely satisfy the loan and close it out. You aren’t obligated to pay off a loan just because you request a quote. Payoff statements are often used in home sales, refinances, and debt consolidations. Borrowers may also see payoff statements if they fall behind on their loan repayments and their lender steps up collection activity by sending the account to collections or by filing a lien.