What Is a Payoff Statement?
A payoff statement is a statement prepared by a lender providing a payoff amount for prepayment on a mortgage or other loan. A payoff statement or a mortgage payoff letter will typically show the balance you must pay in order to close your loan. It may also include additional details, such as the amount of interest that will be rebated due to prepayment, the remaining payment schedule, rate of interest, and money saved for paying early. Finally, it will have a “good-through” date, which is necessary because after that date additional interest will be due, changing your payoff amount and requiring you to apply for another payoff statement. You can request a payoff statement on any type of loan.
- 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.
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 you with a simple payoff amount detailing the exact amount you will need to pay on a specific day to repay the loan early. Traditional financial institutions will usually create a more formal payoff statement that offers a more comprehensive snapshot of information about a loan, and you may have to contact a customer service representative directly to request one. Generally, payoff statements will base their prepayment amount on the next forward payment date.
If you are negotiating a debt consolidation loan with a new lender, you can request payoff statements from your current creditors. You can also have a debt relief company negotiate on your behalf. In a debt 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).
Payoff Statement Fees
So what exactly is a payoff amount? It’s the exact sum of money needed to pay off your loan, and it’s probably different from your current loan balance, as it may include interest and fees that you owe but have not yet paid. What’s more, some lenders may have certain penalties or fees associated with requesting a payoff statement. You should check your loan agreement prior to requesting one to understand the terms.
Payoff statements can be used in collection actions for all types of loans.
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 if fulfilled will stop further action from being taken and release the lien.