When you sell a home you still owe on, your mortgage gets paid off at closing out of the sale proceeds. The document that drives this is the payoff statement, and understanding it helps the money side of your sale make sense. Let me explain.
Written by Adam L. Engel, Esq., Principal and real estate attorney at Prime Title & Escrow
Most sellers still have a mortgage when they sell, and a common worry is how that loan gets handled. The answer is straightforward: I pay it off for you from the proceeds of the sale, using an official figure from your lender called the payoff statement.
A payoff statement is your lender’s official figure for the exact amount needed to pay off your loan in full as of a specific date. It includes principal, accrued interest, and any fees. As your settlement agent, I order it, confirm it, and pay your loan off from your sale proceeds at closing.
Why it is more than your balance
Sellers are sometimes surprised that the payoff is higher than the balance on their last statement. That is normal. The payoff includes interest that has accrued since your last payment, plus any fees your lender is owed. Because interest keeps building, the payoff is always tied to a specific date through which it is good.
The per diem
Your payoff statement lists a per diem, which is the interest that accrues each day. This matters because closings sometimes move by a day or two. The per diem lets the figure be adjusted so your loan is paid off to the penny on the actual day funds are sent, rather than leaving a small shortfall or overage.
How it gets paid
You do not pay your loan off yourself. At closing, your loan payoff is one of the items deducted from your sale proceeds, along with your share of closing costs and the grantor’s tax, as I show in seller net proceeds. I send the payoff to your lender from the sale funds, which is part of why I handle the proceeds through escrow rather than paying anyone directly out of pocket.
Paying the loan is only half of it. After the payoff is received, your lender releases its lien on the property, often through a recorded release sometimes called a certificate of satisfaction. That release is what clears your old loan off the title for good. I make sure the payoff is sent correctly and follow the release so your title comes clean, which matters to the buyer and to you.
More than one loan
If you have a second mortgage, a home equity line of credit, or a lien against the property, each one needs its own payoff and release. A home equity line in particular needs to be paid off and formally closed, not just paid down, so it does not linger against the title. I identify every payoff your sale needs when I review the title, which I describe in clearing title before you sell.
One practical tip for sellers: if you are close to your closing date, avoid making an extra mortgage payment without telling me first. An unexpected payment after I have ordered the payoff can leave a small overpayment for your lender to refund later, which just adds a step. I would rather coordinate the timing so your loan is paid off cleanly in a single figure at closing, with any small per diem difference handled at settlement.
The payoff statement is the quiet workhorse of a seller’s closing, the figure that lets your old loan disappear cleanly so the buyer gets clear title and you get your net proceeds. All you have to do is tell me about every loan or line of credit tied to the property, and I take it from there. Whether you are selling in Virginia or West Virginia, I handle the payoffs and the releases so you do not have to.
Send me your contract and lender details and I will order your payoff, handle the release, and show you your net proceeds before closing.
Get Your Free Quoteor call (703) 552-4155Frequently asked questions
What is a mortgage payoff statement?
A payoff statement is a document from your lender showing the exact amount needed to pay off your loan in full as of a specific date, including principal, interest, and any fees. It is good through a stated date, and the amount changes slightly day to day because of daily interest.
Who orders the payoff for my sale?
As your settlement agent, I order the payoff statement from your lender, confirm the figure, and pay your loan off from your sale proceeds at closing. You do not need to pay the loan yourself; it comes out of the proceeds.
Why is the payoff more than my loan balance?
The payoff includes interest accrued up to the payoff date plus any fees, so it is usually a little higher than the balance on your last statement. It also accounts for daily interest, which is why the figure is tied to a specific date.
What is a per diem on a payoff?
Per diem is the daily interest that accrues on your loan. Because interest builds each day, the payoff statement lists a per diem amount so the figure can be adjusted if closing moves by a day or two.
When is my old mortgage released?
After your loan is paid off, your lender releases its lien on the property, often through a recorded release sometimes called a certificate of satisfaction. I make sure the payoff is sent correctly so that release can be issued and your title is cleared.
This article is general information about mortgage payoffs in Virginia and West Virginia. It is not legal or financial advice for your specific transaction, and your payoff figures come from your lender. Please confirm the details with me directly.