Loan payoff amounts will often not match a borrower’s current balance on either their current loan statement or the balance obtained online.  The current loan balance is the principal amount of the loan owed at the time the figure was calculated.  The loan payoff amount includes the principal balance plus the amount of any interest that is due through the day the loan is to be paid off.

Interest on a mortgage loan is paid in arrears, meaning the current month’s payment is paying for the prior month’s interest.  When a customer makes their current monthly mortgage payment, that payment covers the loan interest due for the previous month, not the month going forward.  As an example, a mortgage payment for the month of March is not paying the interest due in March but rather the interest due for February.  This would contrast to a similar housing cost, rent, in which a payment for March is actually for the use of the rental unit in the month of March.

The principal balance on a mortgage is the balance as of the last payment made and does not include the interest that has accrues since that time.  The payoff will include the principle balance plus any interest due since the last payment was made.

Mortgage lenders and banks will calculate the payoff for a loan using the current principal balance plus interest due using a per diem amount or daily interest amount calculation.  The per diem is the amount of interest due per day based on the interest rate and the current loan balance.  With these two figures, the mortgage lender can then calculate the amount needed to pay off the loan for a specific day.

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