What Is a Payoff Statement?
A payoff statement is a statement prepared by a lender providing a payoff quote for prepayment on a mortgage or other loan. A payoff statement or a mortgage payoff letter will typically show the balance a borrower must pay in order to close their loan. It may also include additional details such as the amount of interest that will be rebated due to prepayment by the borrower.
- In some cases, a debtor may receive a payoff statement as notification for collection action taken on delinquent payments.
- Payoff statements are commonly associated with liens, which provide notification that a legal claim has been made to seize property if full payment is not received.
- In some situations, a payoff statement may be used when obtaining a consolidation loan.
- Consolidation loans can be a good way to reorganize and refinance outstanding debt obligations usually with a lower overall rate of interest for the borrower.
Payoff statements provide clear disclosure for a borrower on the total amount they must payoff to close a loan account. They can also include other important loan details, such as the remaining payment schedule, rate of interest, and money saved for paying early. A borrower can request a payoff statement on any type of loan.
How a Payoff Statement Works
Requesting a payoff statement is commonly the first step in paying off a loan. Different types of lenders will have varying formats for payoff statements. Online lenders will generally provide borrowers with a payoff quote detailing the exact amount a borrower will need to pay on a specific day to repay the loan early.
For loans issued by traditional financial institutions, a borrower may need to contact a customer service representative directly rather than obtaining a payoff quote online. A payoff quote is the amount of money left to pay off a loan.
Traditional financial institutions will usually create a more formal payoff statement that offers a more comprehensive snapshot of information about a loan. Generally, payoff statements will base their prepayment quote on the next-forward payment date.
Some lenders may have certain penalties or fees associated with requesting a payoff statement. Borrowers should check their loan agreements prior to requesting a payoff statement to understand the terms.
Payoff statements can be used in collection actions for all types of loans.
If a borrower is negotiating a consolidation loan with a new lender, they can request payoff statements from the creditors which they seek the proceeds of their new loan to go towards. In a consolidation loan deal, a financial institution may choose to pay off each loan with the proceeds of the consolation loan (according to the information provided in the payoff statements).
A borrower may also be presented with a payoff statement from a creditor if collection action has been taken on a specific debtor account.
Generally, payoff statements will be associated with serious collection action–usually involving a lien. A lien is a legal document that a creditor can obtain from the courts in order to seize property from a debtor. In the event a debtor does not make their payments, the property may be seized for the purpose of repaying certain debts. A lien will typically include a detailed payoff statement outlining the payoff requirements of the borrower, which will subsequently stop further action from being taken.