# How is a mortgage payoff handled at closing? At a US closing, the settlement agent orders a payoff statement, wires the exact amount good through a stated date, and the lender then releases its lien. --- At a closing in the United States, the settlement agent orders a payoff statement from the seller's lender, pays the exact amount that statement gives for the day the money will arrive, out of the sale proceeds on the day of disbursement, and the lender then releases its lien from the public record. The seller does not write a check and does not carry money to the bank: the payoff is one line of the settlement statement, paid by wire before the seller receives the balance. This article covers the practice in the United States, in US dollars. It is general information, not legal or tax advice, and the details change from one state to the next and from one lender to the next: who conducts the closing, how interest is counted, what the lender may charge and how long it has to release the lien.
7 business daysthe outer limit for a servicer to send an accurate payoff statement after a written request, under federal Regulation Z
$54.53 a daythe interest on a $318,450 balance at 6.25%, counted on a 365-day year: what each day of delay adds
20 daysexcluding weekends and legal public holidays, for the servicer to return what is left in the escrow account after payment in full, under Regulation X

The two deadlines are federal rules published by the Consumer Financial Protection Bureau. The daily interest is a worked example computed for this article.

## Who orders the payoff statement, and when? The settlement agent orders the payoff statement, usually as soon as the file is opened and the seller has signed an authorization, and orders an updated one shortly before closing if the first has expired. "Settlement agent" here means whoever conducts the closing in that state: a title company, an escrow company or a closing attorney. The lender, or more often the company that services the loan for it, will not discuss a loan with a stranger. The request therefore carries the loan number, the property address, the borrower's name, the date the payoff is expected, and the borrower's signed authorization. Many servicers take the request through a dedicated portal or a payoff department with its own address or fax number; a request sent anywhere else may simply wait. Federal law sets the outer limit on the reply. Under Regulation Z, as published by the Consumer Financial Protection Bureau, a creditor, assignee or servicer of a consumer loan secured by a dwelling must send an accurate payoff statement within a reasonable time, and in no case more than seven business days, after receiving a written request from the consumer or from a person acting on the consumer's behalf. The same rule allows a longer, still reasonable, time when the loan is in bankruptcy or foreclosure, when it is a reverse mortgage or a shared appreciation mortgage, or after a natural disaster or a similar event. The official commentary adds two points that matter in a closing office: the servicer may set reasonable requirements for how a request is made, and it may verify the identity of the person asking and obtain the borrower's authorization before the clock starts. ## What does a payoff statement contain? A payoff statement gives the total needed to pay the loan in full on a stated date, broken into unpaid principal, interest accrued to that date, fees, and the daily interest to add if the money arrives later, together with the instructions for sending the funds. It is a quote with an expiry date, not a balance. The table below shows the lines of a typical statement, filled in with the worked example used in the rest of this article: a loan with $318,450.00 of unpaid principal at a fixed 6.25%, with interest paid through May 31 and the funds expected at the lender on June 18. | Line | What it is | Worked example | | --- | --- | --- | | Unpaid principal | The principal still owed after the last payment applied | $318,450.00 | | Interest to the payoff date | Daily interest from the date interest was last paid to the day the funds arrive | $981.54 | | Fees | Charges the loan documents and state law allow; here, by assumption, a $45.00 release fee and a $30.00 statement fee | $75.00 | | Per-diem interest | The amount to add for each further day | $54.53 | | Good-through date | The last day on which the quoted figures are valid | June 22 | | Escrow balance | Money held for taxes and insurance, usually shown for information and refunded separately | $2,140.00 | | **Total due on June 18** | Principal, interest and fees for that day | **$319,506.54** | Other lines appear when they apply: unpaid late charges, amounts the servicer advanced for taxes or insurance, a deferred balance left by an earlier payment plan or modification, a prepayment charge, or a credit for funds the servicer is holding unapplied. A statement also carries conditions in small print. The most common say that the figures may change if a payment already made is returned, if a tax or insurance payment leaves the escrow account before the payoff arrives, or if the monthly payment due in the meantime is not made. ## Why is the payoff amount different from the balance on the monthly statement? The payoff amount is higher than the principal balance on the monthly statement because mortgage interest is paid in arrears: each monthly payment covers the interest of the month that has just ended, so interest has been building, unbilled, since the last payment. The monthly statement shows what was owed in principal on its date; the payoff statement adds everything owed up to the day the loan ends. In the worked example, the seller's last monthly statement shows a principal balance of $318,450.00. The payment made on June 1 paid the interest for May. From June 1 onward, interest accrues every day and would normally be collected in the July payment. A sale that disburses on June 18 ends the loan in the middle of that month, so the lender collects 18 days of interest directly in the payoff: $981.54. With the $75.00 of fees, the amount due is $319,506.54, which is $1,056.54 more than the balance the seller has in mind. ## How is per-diem interest calculated on a payoff? Per-diem interest is the unpaid principal multiplied by the annual interest rate and divided by the number of days the lender counts in a year, most often 365; the result is multiplied by the number of days from the date interest was last paid to the day the lender receives the funds. The day that counts is the day of receipt, not the day of signing. With the example's figures, $318,450.00 at 6.25% is $19,903.13 of interest for a full year, or $54.53 a day on a 365-day year. Some loan documents count a 360-day year instead; the same loan then accrues $55.29 a day, 76 cents more, and 18 days cost $995.22 rather than $981.54. The settlement agent does not choose between the two: the per-diem figure printed on the statement is the one that applies, and recomputing it is only a way to check that the statement is consistent. The table shows what the lender must receive depending on the day the wire arrives, with the same principal, the same $75.00 of fees and the 365-day count. | Day the lender receives the funds | Days of interest | Interest | Total to pay | | --- | --- | --- | --- | | June 18, as planned | 18 | $981.54 | $319,506.54 | | June 19, one day late | 19 | $1,036.07 | $319,561.07 | | June 21, three days late | 21 | $1,145.13 | $319,670.13 | | June 22, the good-through date | 22 | $1,199.66 | $319,724.66 | | June 23 or later | Not quoted | New statement needed | New statement needed | A closing delayed by three days adds $163.59 to the payoff in this example, and that amount comes out of the seller's proceeds. Nothing else changes as long as the new date stays inside the good-through date. Past that date the statement is no longer a commitment from the lender: a fee may have been added, a tax payment may have gone out of escrow, and the settlement agent orders a new statement rather than extending the old one by arithmetic. Two details explain most payoff shortfalls. The first is the cut-off time: a statement usually says that funds received after a stated hour, or on a day the lender is closed, are treated as received on the next business day. A wire released late on the day before a weekend can therefore cost three more days of interest, the same $163.59, without the closing having moved at all. The second is the cushion: many settlement offices collect a few days of extra interest from the seller at closing so that a late arrival does not leave the loan short by $54.53. When the wire lands on time, the servicer refunds the excess to the borrower, or the settlement office does if it held the cushion back, depending on the office's practice. ## How does the payoff move from the closing table to the recorded release? The payoff runs in a fixed order: authorization, statement, verification, settlement statement, wire, confirmation, release and recording. The settlement agent does not release the seller's proceeds on the strength of a payoff that has not been verified and funded.
From ordering the statement to recording the releaseWorked example: $318,450.00 of principal at 6.25%, funds received June 18
  1. Collect the loan details and the authorizationThe seller gives the settlement office the servicer's name, the loan number and a signed authorization for every loan secured by the property, including any home equity line with a zero balance.
  2. Order the payoff statementThe settlement agent sends the written request through the channel the servicer requires, asking for a payoff date a few days after the planned closing so that the good-through date covers a short delay.
  3. Read the statement against the fileThe agent checks the borrower, the property and the loan number, compares the lienholder with the one shown in the title search, and recomputes the per diem: $318,450.00 at 6.25% over 365 days gives $54.53.
  4. Verify the wire instructionsThe agent confirms the bank, the account name and the account number with the servicer by calling a number already known to the office, and records who confirmed them and when.
  5. Enter the payoff on the settlement statementThe payoff appears as a charge to the seller for the day the funds will arrive: $319,506.54 for June 18, plus any cushion the office collects.
  6. Wire the payoff at disbursementOnce the buyer's funds and the buyer's loan funds are in the settlement account and the closing is authorized to disburse, the agent sends the wire with the loan number in the reference line, before the lender's cut-off time.
  7. Keep the proof of paymentThe agent files the wire confirmation with its reference number and, where the servicer provides one, the acknowledgement that the loan is paid in full.
  8. Track the release until it is recordedThe lender signs a satisfaction, release or reconveyance and sends it for recording in the county land records; the settlement office or the title insurer follows up until the recorded document is in the file.
## How are the payoff wire instructions verified? Payoff wire instructions are verified by confirming them with the lender through an independent channel, a telephone number the settlement office already holds or finds for itself, never a number or a reply address taken from the message that delivered the instructions. The control exists because a payoff is often the largest single wire of a closing and leaves the settlement account for an account the office may never have paid before. The American Land Title Association describes payoff fraud as the delivery of a falsified payoff statement or altered wire details to the settlement agent by someone impersonating the lender or another participant in the transaction. Its guidance, relayed to the industry by state land title associations, sets out controls that an office can audit file by file: - Keep the verified wire details of frequent payees, such as large servicers, in the office's production system, restrict who can change them, and treat a statement showing different bank details as an exception to investigate. - Check that the destination makes sense: a payoff to a national lender is not normally sent to an unrelated bank, and the account name should be the payee or its correspondent bank. - Confirm bank details received from an outside party by voice, using a known and trusted telephone number rather than one printed on the statement. - Confirm by telephone every payoff to a private or non-institutional lender, every time, since no earlier successful wire exists to compare with. A written procedure makes the control provable. A file that passes an audit shows the source of the statement, the person who verified the instructions, the number called and where it came from, a second person's approval of the wire where the office uses dual control, and the confirmation of the wire that left. The same guidance asks settlement companies to report a wire sent on false instructions to the Federal Bureau of Investigation's Internet Crime Complaint Center, whatever the amount, and the sending bank should be told at once so that it can try to recall the funds. ## What happens to the escrow or impound account balance? The balance of the escrow account, called an impound account in some states, is normally returned to the seller by the servicer after the loan is paid in full, rather than deducted from the payoff. It is the borrower's money, collected month by month to pay property taxes and insurance, and it sits outside the loan balance. The federal rule is in Regulation X, published by the Consumer Financial Protection Bureau: within 20 days of the borrower's payment of the mortgage in full, not counting Saturdays, Sundays and legal public holidays, the servicer must return to the borrower any amount remaining in an escrow account under its control. The official commentary says the rule does not prohibit a servicer from netting the remaining escrow funds against the payoff, which is why a minority of statements show the escrow balance as a credit. The statement itself says which treatment applies, and the settlement agent follows the statement. In the worked example, the $2,140.00 held in escrow is not part of the $319,506.54 wired on June 18. The servicer sends it to the seller afterwards, usually by check to the address it has on file. A seller who is moving out of the property gives the servicer a forwarding address before closing, or the refund goes to the house just sold. Two practical points follow. The amount refunded may differ from the balance printed on the payoff statement, because a tax instalment or an insurance premium can be paid out of the account between the statement and the payoff. And the property taxes owed at closing are settled between buyer and seller on the settlement statement by proration, independently of what the servicer holds: the escrow refund arrives later and is not a closing credit. The seller also cancels the homeowner's insurance after the sale has closed, and any premium refund comes from the insurer. ## Can the lender charge a prepayment penalty on the payoff? A lender can charge a prepayment penalty only if the note provides for one and the law that applies to that loan allows it, and when one applies it appears as its own line on the payoff statement. Most owner-occupied home loans in the United States carry none, but the note is the document that answers the question. Federal rules restrict prepayment penalties on many consumer home loans, in when they may be charged and in how large they may be, and state laws add their own limits for some loan types. Where a penalty is still found, it is usually on an older loan, an investment-property loan, a commercial or business-purpose loan, or a privately negotiated loan. Its form varies: a percentage of the amount prepaid, a fixed number of months of interest, or, on commercial loans, a formula tied to the interest the lender loses. For the seller, the check is simple: read the note and any prepayment rider well before the listing is priced, and ask the servicer whether a prepayment charge would apply on the expected date. A penalty that ends on a known anniversary of the loan can be a reason to set the closing date a few days later, once the per-diem cost of waiting has been compared with it. ## How are second liens and home equity lines paid off? Every loan secured by the property needs its own payoff statement and its own release, and a home equity line of credit must be closed, not only paid down to zero. A line that is paid to zero but left open remains a recorded lien, and the borrower may still be able to draw on it. The federal payoff-statement rule covers these loans as well: the official commentary to Regulation Z states that it applies to home equity lines of credit, so the seven-business-day limit holds for them too. The difference lies in what the request must say. For a line of credit, the settlement agent asks for a payoff with instructions to freeze the line, close the account on receipt of funds and release the security instrument, and the borrower signs a written request to close it. Many lenders have their own form for this. The settlement office usually asks the seller to stop using the line, and to hand over or destroy the checks and cards attached to it, once the statement has been ordered. ## How long does the lender take to record the release, and who follows up? A lender typically has a period fixed by state law, counted in weeks rather than days, to sign and record the document that releases its lien, and the settlement office or the title insurer follows up until the recorded release is in the file. The name of the document depends on the security instrument and the state: satisfaction of mortgage, release of lien, discharge, or deed of reconveyance. State statutes set the deadlines and the consequences, and they differ widely. California's Civil Code gives one example. For a mortgage, a certificate of discharge must be executed and recorded within 30 days after the mortgage is satisfied. For a deed of trust, the beneficiary has 30 calendar days after satisfaction to deliver the documents and the request for reconveyance to the trustee, and the trustee has 21 calendar days after receiving them and the fees to record the reconveyance. The same section lets a title insurance company prepare and record a release if no reconveyance has been recorded within 75 calendar days of satisfaction, after giving notice, and provides for a $500 forfeiture to the person affected, in addition to damages. Other states use other periods, other documents and other remedies. The buyer does not wait for this. The buyer's title insurance policy is issued on the strength of the payoff made at closing, and the old lien is cleared from the record afterwards. That is why the follow-up belongs to the closing side: the office keeps a list of open releases, checks the county records, and writes to the servicer's lien release department with the wire confirmation when a release is overdue. How the release is tied to the payment that earns it, and what is done when a lender never records one, is a subject of its own. ## What can the seller check before closing? Before closing, the seller can confirm that every loan on the property has been disclosed, that the payoff figure has been read line by line, and that the servicer knows where to send what it owes afterwards. None of it takes more than an hour, and each item removes a cause of delay. - List every loan and line of credit secured by the property, including one with a zero balance and one taken out years ago, and give the settlement office the servicer and the loan number for each. - Ask the settlement office for a copy of the payoff statement and compare the unpaid principal with the latest monthly statement; the difference should be explained by interest since the last payment, fees and any missed payment. - Check the per-diem figure with the three numbers on the statement: principal, rate and the day count. A result within a few cents of the printed figure is consistent. - Sign the request to close any home equity line when the settlement office sends it, and stop drawing on the line. - Give the servicer a forwarding address for the escrow refund, the paid-in-full letter and the year-end interest statement. - Treat any message that changes where the payoff is to be sent as unverified, and telephone the settlement office on a number already known.