SVC-04 · Servicing guide
How a payoff quote works
The number that closes a loan is not the number on your statement. It is a figure calculated to a specific future date, valid only until that date, and it is the last place a long and well-behaved loan can still go wrong.
Section 01What a payoff quote is
A payoff quote — also called a payoff statement or a demand statement — is a formal statement from your servicer of the exact amount required to satisfy the loan in full if the money arrives by a stated date. That date is the good-through date, and it is as much part of the quote as the amount.
You will need one to sell a financed asset, to refinance, or simply to clear a loan early. The buyer, the new lender or the closing agent will usually want it directly from the servicer rather than from you.
Section 02Why it exceeds your statement balance
Four things sit between the principal balance printed on your last statement and the payoff figure.
| Component | Why it is there |
|---|---|
| Principal balance | What you owed as of the statement or quote date. |
| Interest accrued to the good-through date | Interest accrues daily. The quote projects it forward to the date the funds are expected. |
| Outstanding fees | Unpaid late charges or other assessed fees, plus any payoff statement or recording fee the agreement permits. |
| Escrow position | On escrowed loans, an escrow shortage may be added; a surplus is normally refunded after closing rather than netted. |
On a precomputed-interest contract the arithmetic is different: the total finance charge was calculated at the outset, and paying early may or may not earn you a rebate of the unearned portion depending on the contract and state law. If your agreement mentions a rebate method, ask the servicer to explain how it applied to your figure.
Section 03Per diem interest
The per diem is the interest that accrues each day on the current principal balance. It is the reason a quote expires, and it is the number that tells you what a delay costs.
On a simple-interest loan it is calculated on the outstanding principal at the note rate, divided across the year — most commonly by 365 days, though some agreements use a 360-day convention. Always ask for the per diem alongside the payoff figure. With it, you can check the quote yourself and work out the cost of closing a few days later than planned.
Section 04Estimate the shape of it
This estimator shows how the components fit together on a simple-interest loan using a 365-day convention. It is a teaching tool, not a quote: it cannot know your fees, your escrow position or your servicer's conventions. Only your servicer can issue a real payoff figure.
Section 05Requesting one
Request the payoff from the servicer, through the portal or in writing. Ask for five things explicitly:
- The payoff amount and the good-through date.
- The per diem, so you can adjust for a different date.
- Acceptable payment methods, and whether wire is required above a threshold.
- Exact wire or remittance instructions, including any reference the payment must carry.
- What will be sent to you afterwards, and how long it takes.
For mortgages, a written request for a payoff statement is treated as a request for information under federal servicing rules and carries a response deadline. If a servicer is unresponsive, put the request in writing to the address they designate for information requests, and keep proof.
Section 06Paying it correctly
Three rules, all learned the hard way by somebody.
- Use the method they specify. Servicers frequently require certified funds or a wire for a payoff. A personal cheque may be held or returned, and while it is held the per diem keeps running.
- Send it to arrive before the good-through date, not on it. If it arrives after, the payoff is short by at least the per diem times the delay — and a payoff that is short does not close the loan.
- Cancel autopay only after the loan closes. Cancelling first, then having the payoff delayed, produces a missed instalment on a loan you were about to clear.
Section 07After the final payment
Paying the balance is not the end of the process. On a secured loan the lien has to be released, and that is a separate administrative step that fails silently more often than it should.
- Get written confirmation that the loan is paid in full and the account is closed with a zero balance.
- Confirm the lien release. For a vehicle, the title should be released to you or to the state, depending on where you live. For real property, a satisfaction or reconveyance should be recorded with the county. Ask when it will be filed, then verify with the recording office that it was.
- Watch for an escrow refund. A surplus is normally refunded after closing, within a period set by rule. It will go to your address of record — make sure that is current before you move.
- Check your credit reports a month or two later. The account should show as closed and paid. Errors at this stage are common and easy to correct if you catch them.
Section 08Common traps
- Paying the statement balance instead of the payoff. It leaves a small residual balance that continues to accrue and can generate a statement, a fee, and eventually a delinquency on a loan you believed was closed.
- Letting the quote expire. Quotes are cheap to reissue. Ask for a fresh one rather than guessing.
- Assuming the lien release is automatic. It usually happens. When it does not, you find out years later at the worst possible moment.
- Discarding the paperwork. Keep the payoff statement, the zero-balance letter and the recorded release permanently. They are small files and they are the only proof you have.
Related: understanding your monthly statement and payment options and avoiding late fees.