Why Is My Loan Payoff Amount More Than What I Owe? What You Need to Know

If you’ve been carrying a large loan for some time, paying it off can be an exciting prospect. It can also be a bit of a shock if you find out that your loan payoff amount is more than what you thought you owed.

The amount you need to pay off a loan may not be the same as the remaining balance on the loan. There are several reasons for that. 

What is a payoff total?

A payoff total is what you would have to pay to clear a loan in a single payment. To determine your payoff amount you will have to ask your lender for a payoff statement. You won’t get the amount accurately from your last statement or from an online calculator.

You will need to know your payoff amount if you intend to pay off or refinance a loan. This is most common with longer-term loans like mortgages or car loans.

Your payoff amount will be higher than the loan balance in your last statement. That happens because some interest will accrue between the last statement date and the payoff date. There may also be other fees or penalties.

Current loan balance vs. loan payoff amount: What’s the difference?

Your monthly loan statement will show you your current balance and the amount of that payment that is due. It does not include the interest accrued after the statement date.

Your loan payoff amount is the amount you would need to pay to completely retire the loan and leave it paid in full. This amount will include the interest accrued up to the date of your final payment. It may include other fees as well.

Some loans, particularly car loans, may impose a prepayment penalty. If your loan has a prepayment penalty you will have to decide whether it is worthwhile to pay the loan off early.

Loan payoff statements

The lender’s formal payoff statement will show the payoff balance, which is the full amount you will need to pay to close out the loan. The statement may include:

  • The expiration date (the last date on which the payoff quote is valid)
  • The address you will mail the payment to
  • How you should pay (cashier’s check or other)
  • The loan’s interest rate
  • The outstanding principal balance
  • An itemized list of any charges above the principal balance
  • The total amount you will pay
  • The amount you’ll pay per day if the payment is received after the expiration date
  • The amount you’ve saved by paying the loan off early

If your payment is received after the expiration date you may have to pay an additional amount. Paying by bank transfer or other electronic means will prevent this. If you have to mail a check, leave yourself plenty of time.

Common uses for payoff statements

You’ll need a loan payoff statement if you plan to pay your loan off early, but they have other common uses as well.

  • Title companies will ask for a payoff quote whenever a home is sold
  • Borrowers who plan to refinance a mortgage or car loan will need a payoff quote
  • Debt consolidation involves using a new loan to pay off two or more existing debts. You will need a payoff statement for each debt you intend to consolidate
  • Creditors may send a payoff statement as part of the debt collection process if your account is delinquent

A loan payoff statement is essentially a price quote. It does not commit you to pay and can be used for multiple purposes.

Requesting a payoff quote

If you want to pay your loan off or refinance it, you’ll need to request a payoff quote from your lender. Different lenders may offer different methods for the request, often including one or more of the following:

  • Complete a paper form
  • Use an online system
  • Call the lender’s customer service number

You’ll have to contact your lender to get your options.

You will need to provide some information, including:

  • Your name
  • Your account number
  • Your contact details
  • Your property address (for mortgage loans)
  • Your desired payoff date

Your payoff quote will only be valid for a limited time. If your payoff date changes your quote will also change.

You can usually get an estimated payoff quote over the phone, but you should not treat this as a final quote.

Mortgage payoff quotes

If you are paying off a mortgage you will need to ask about your escrow balance. Your escrow account holds money that you have prepaid to cover property taxes, homeowners insurance, and other expenses. Details of your escrow account can be found on your mortgage statement.

If you pay off or refinance your mortgage, this money will be returned to you after any remaining taxes, premiums, and other expenses are deducted. It could be a substantial amount.

Why would you need a mortgage payoff statement? Watch this to learn more:

The bottom line

If you are paying off or refinancing a loan you will need a loan payoff statement to tell you how much you will need to pay. In most cases, the payoff amount will be slightly higher than the amount on your statement due to additional accrued interest.

If your payoff quote is much larger than your balance your loan may have a prepayment penalty. In this case, you may need to re-evaluate your decision to pay the loan off. You may be better off simply paying the loan on schedule.

A payoff quote doesn’t obligate you to pay off the loan. It’s a tool that you will use if you need to pay off a loan or simply to find out how much a loan would cost to pay off on a given date.

FAQs

What is home equity?

Your home equity is the value of your interest in your home. It is the current market value of your home minus the amount you owe on your mortgage (the lender’s interest). Your home equity will change if the market value of your home rises or falls or as you make payments.

What does “being In arrears” mean?

An account is in arrears when the person who owes the debt has failed to make an on-time payment. If your payment is late and any payment grace period has expired, you are in arrears. The amount of arrears is the amount of the payments you have failed to make.

How can I use my home loan to consolidate debt?

A home equity loan can be used to consolidate debt if you own a home and have equity in it. These loans generally have low-interest rates even if your credit score is low. There may be a minimum loan amount and you could lose your home if you cannot pay the loan.

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