Sometimes it’s difficult to understand why the payoff amount on a loan is what it is. This article will look at each of the component parts of a payoff payment. When paying off a loan, it’s important that no other payments apply on dates that are in the future of your chosen payoff date. The payoff amount on a given day equals the total of Outstanding Principal (including any outstanding discount portion) + Accrued but Unpaid Interest + Outstanding Fees + Payoff Escrow.
The principal portion of the payoff payment amount will be equal to the Original Loan Amount + Underwriting Fee – Any Principal that Has Been paid on the Loan. The principal portion includes any unpaid discount.
Any interest that has accrued on the loan, including interest that will accrue on the date of the payoff, that has not yet been paid, will be included in the payoff amount. If your Days In Year setting inside the Initial Setup tab is set to “Actual,” daily interest is calculated as Interest Rate/365. If your Days In Year setting is set to “Frequency,” daily interest is calculated as Interest Rate/12/Days in the month. This means that even if the principal balance remains the same, more interest will accrue for a day in February (Interest Rate/12/28) x Principal Balance than in a January day (Interest Rate/12/31) x Principal Balance.
All unpaid fees that have been assessed on the loan including payoff and standard fees will be added to the payoff balance.
If you are using the escrow or hold accounts for the loan, the amount of escrow or hold that comes due at the time of payoff will be determined by the Payoff Setting you chose for each. The options include:
- Standard: Payoff includes escrow that has come due but has not been paid.
- Standard + 1 Period: Payoff includes unpaid escrow that has come due to date, plus 1 period of escrow.
- Standard + Full: Payoff includes unpaid escrow that has come due to date, plus 1 full payment amount.
- -10 Standard/+10 Standard + Full: If payoff is made during the first 10 days of a payment period, use the “Standard” setting. After that use the “Standard + Full” setting.
- Daily Straightline: Payoff increases daily by the daily escrow amount (monthly escrow/days in month).
- Regular Minus Balance: Current escrow balance is subtracted from payoff.
- Full: Payoff includes all unpaid escrow.
- None: No escrow is included in payoff.