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Understanding payoff your loan


Paying Off Your Loan

Purchasing property is the single largest financial transaction most people ever make.  As such, calculating the exact amount to payoff your loan involves many variables, such as principal, interest, escrow, and fees. The payoff balance changes each day since interest is charged for every day your loan remains active.

Your final payoff payment must be made in certified funds and must include the exact amount due for the day it will be received at Lender.  Your payoff statement/quote explains this in detail.  Please do not stop payment on any regular mortgage payment you may have made because those funds have already been calculated into your payoff statement/quote and may result in a shortage that would make us unable to pay your loan in full.  Any excess funds received or remaining escrow funds will be refunded to you 30 days after the payoff is posted.

What is a prepayment penalty?        

It is costly to originate and purchase a loan.  If a loan pays off early, there is no chance for the lender to be repaid for those costs.  Prepayment penalties are interest funds paid to the lender if a loan is retired before the term agreed upon in the loan documents.  Generally, prepayment penalty clauses apply during the first 3 to 5 years only and there is no penalty thereafter.  Prepayment penalty terms vary and may be defined either in your Note or a Rider or Addendum to the Note.  One of the most common prepayment penalties assesses 6 months of interest on the unpaid principal balance for a specified number of years after closing.  Others charge a flat percentage of the unpaid principal balance during the first years of the loan.

Why are prepayment penalties charged?        

In some cases, a borrower may elect for a prepayment penalty at closing in exchange for more attractive terms of repayment, such as a lower interest rate.  A prepayment penalty may also apply with a loan issued to someone whose credit is under repair and represents a higher risk of default.  In exchange for originating a loan under these circumstances, a lender wants to ensure a certain amount of return over the life of the loan.  There is often a financial penalty to the lender if the loan is paid off before its full term.  The prepayment penalty helps ensure a specified return on the loan.

May a prepayment penalty be waived?        

Prepayment penalties must be collected under the terms agreed upon in the loan documents executed at closing and therefore cannot be waived.  These penalty funds become part of the expected return on an investment.   

When will I receive my Release of Lien/Satisfaction document?        

In most cases, your Release of Lien/Satisfaction document will be provided within 30 days or within the state mandated time frame.  In many cases, this document is sent to your county records office to be recorded for you.  If your loan has been paid in full for more than 30 days and you wish to check the status of your release.


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