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Payoff Letter Basics

How Mortgage Payoff Letters Work

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A payoff letter is a document describing how you can pay off your home loan. As you prepare to pay off the loan, you should request an official payoff letter to avoid any confusion. Let’s review what those documents are and why they help you pay off the mortgage.

 

What is a Mortgage Payoff Letter?

A payoff letter is a letter from your lender with specific details about paying off your loan. This helps you completely pay off a loan in one transaction, which would otherwise be tricky (because your loan balance may change every day due to interest charges and any payments received).

The document assumes that you'll pay by a certain date, and tells you exactly how much to pay. The letter will also provide instructions on how to make the payment: you should get wiring instructions as well as instructions for payment by check (who the check should be payable to, and where to send it).

Your payoff letter may also describe how much to adjust the payment if you pay before or after the projected payoff date. This helps in case you want to pay a few days early or late.

 

How to Get a Payoff Letter

To get a payoff letter, ask your lender for one. You can generally call customer service, and you may be able to make the request online or via an automated phone system if customer service is not available.

If you’re refinancing, your new lender will most likely make the request for you and the old lender may simply notify you that a payoff quote was requested.

 

Costs

It may be free to get your payoff letter, or you may have to pay. Ask customer service if there’s a cheap way to do it. For example, some banks mail the document for free but charge $25 to fax it to you.

There may also be a processing fee to pay off the loan. If you pay off the loan yourself - either because you have enough money or you refinance in a peer to peer lending transaction - make sure you add the processing fee to the payoff quote so the transaction goes through.

Make sure you pay close attention to all the fees, including prepayment penalties.

 

Verbal Quotes

If you like, you can request a verbal payoff quote from your lender. This is not an official and legally binding document, but at least you get an idea of your payoff amount. This may be enough information to help you plan for payoff, and you can even move forward and make payment based on a verbal quote. But if anything goes wrong you have no recourse. If you're in a hurry and you need the loan paid off correctly the first time, get a written quote.

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