Quick overview

A payoff demand (sometimes called a payoff statement or payoff quote) tells you exactly what the lender expects to receive to close your loan on a specified payoff date. It’s used for mortgage closings, refinances, short sales, business-sale closings, and voluntary payoffs. The document typically includes the outstanding principal, accrued (per‑diem) interest to the payoff date, fees and lender charges, any escrow/impound balance adjustments, and wiring or payment instructions.

Below I walk through what to look for line-by-line, how to calculate per‑diem interest if needed, and practical steps to avoid mistakes that cost time and money.

Who issues a payoff demand and when to request one

Most lenders, servicers, and loan holders will produce a payoff demand when requested by a borrower, title company, or settling attorney. Request it early—ideally 10–21 days before your closing or payoff date—so you can reconcile differences and get an updated quote if your closing slips. Lender policies on validity vary (commonly 10–30 days); confirm the expiration date on the statement and ask for a recalculation if the payoff date changes (Consumer Financial Protection Bureau, CFPB).

Line‑by‑line: What to verify on a payoff demand

Below are the common sections you’ll see and what each means:

  • Outstanding principal balance: The unpaid loan principal as of the lender’s calculation date. This is the core amount you must cover.
  • Per‑diem interest (accrued interest): Lenders calculate daily interest from the last payment date up to, but not including, the payoff date. Expect either a per‑diem amount and a total accrued figure, or a formula you can use to check the math.
  • Fees and charges: May include payoff processing fees, reconveyance or release fees, recording fees, late fees, attorney fees, or inspection fees. Some lenders list estimated fees and will adjust at payoff.
  • Escrow/impound reconciliation: If your loan has an escrow account for taxes/insurance, the payoff may show an escrow balance and whether a refund will be issued (or an amount still owed if escrow is short).
  • Prepayment penalty or early payoff fee: Not common on most consumer mortgages today, but still possible on some loans. Confirm whether one applies and how it’s calculated.
  • Payoff date and expiration: The exact date the quoted payoff is calculated to, and the number of days the quote remains valid.
  • Payment/wire instructions: Exact account numbers, routing, or certified check details. IMPORTANT: Do not rely on emailed wire instructions alone—verify by phone to a known number to avoid wire‑fraud scams.

Quick checks to spot errors

  • Do the arithmetic: Principal + accrued interest + fees = total payoff. If it doesn’t add up, ask for an itemized ledger.
  • Confirm daily interest method: Some loans use a 365‑day year; others use 360. The payoff should state which method the servicer used. If it’s not shown, ask.
  • Watch escrow math: If taxes were recently paid from escrow, verify the escrow balance and whether a refund is due after payoff.
  • Compare to last statement: Outstanding principal should match your most recent periodic statement or the loan amortization balance.

Per‑diem interest: how to compute and verify

Per‑diem interest = (Outstanding principal × Interest rate) ÷ Day‑count basis

Example using a 365‑day count:

  • Principal: $250,000
  • Interest rate: 4.25% annually
  • Per‑diem = (250,000 × 0.0425) ÷ 365 = $29.11 per day
  • If payoff date is 10 days after the calculation date, accrued interest = $29.11 × 10 = $291.10

Note: Some commercial loans use 360‑day year or other conventions. Confirm the lender’s day‑count convention on the payoff demand (CFPB provides general guidance on mortgage payoff timing).

Typical real‑world items borrowers miss

  • Wire versus certified check timing: A wire may post same day; a mailed certified check could arrive late and cause additional interest to accrue. Confirm exact receipt instructions.
  • Holdbacks and payoff shortfalls: Sellers or payers sometimes expect the title company to cover shortfalls; always confirm who is responsible for differences greater than the payoff quote.
  • Reconveyance or release timing: Even after payoff, the lender may take 2–6 weeks to record a release or reconveyance. Confirm the lender’s process for sending the release to the county recorder.
  • 1099‑C / tax implications: If part of a debt is forgiven or a lender accepts less than the full balance in settlement, the lender may issue IRS Form 1099‑C for cancellation of debt (COD). Consult the IRS rules for exclusions (e.g., insolvency) and speak to a tax professional if COD is possible (IRS.gov).

Example scenario: Refinancing a mortgage

You request a payoff demand 14 days before closing. The payoff shows:

  • Principal: $385,000
  • Accrued interest to payoff date: $1,200
  • Reconveyance fee: $250
  • Payoff processing/wire fee: $50
  • Total payoff: $386,500

At closing, the new lender wires $386,500 to the current servicer. The borrower confirms by phone the wire arrived and obtains written confirmation of payoff and planned reconveyance. Two weeks later, the borrower receives the release from the county recorder.

Step‑by‑step checklist for borrowers

  1. Request the payoff in writing and ask the lender to email a signed payoff statement to you and the title company.
  2. Confirm the payoff date and the days the quote is valid. Schedule your closing or payoff to fall within that window.
  3. Check the arithmetic: principal + accrued interest + fees should equal the total payoff.
  4. Verify payment instructions. Independently call the lender using a number from its official website to confirm wire instructions before sending funds.
  5. Ask about escrow refunds and how they will be returned.
  6. Obtain a final receipt and a written notice that the loan is satisfied after the payment posts.
  7. Monitor county records for the deed of reconveyance or satisfaction of mortgage.

Negotiation and disputes

You can dispute incorrect fees or request better terms for certain charges, especially if the fee is a servicer error. For mortgage-related issues, the Consumer Financial Protection Bureau (CFPB) has complaint processes and guidance for resolving servicing problems (consumerfinance.gov). If the payoff relates to a business or commercial loan, negotiation and legal review are often appropriate.

Special situations

  • Short sales or deeds in lieu: A payoff demand for these transactions usually includes lender approval conditions. Confirm whether a short sale approval covers the seller’s full fee and any deficiency judgment possibilities.
  • Business loans: Lenders may present different payoff mechanics (balloon amounts, accrued default interest, demand notes). Request a complete ledger and consider legal counsel.
  • Loans sold to a new servicer: If servicing transferred, confirm which entity issues the payoff. Request a payoff from the current servicer; transferring servicer errors are a common source of payoff mistakes.

Useful internal resources

Common FAQ highlights

  • How long is a payoff statement valid? Lenders typically set an expiration—often 10–30 days. Always check the expiration date and get an updated payoff if the payoff date slips.
  • Can the payoff amount change after I schedule funds? Yes. Interest accrues daily and fees can change if the loan goes into default or if additional service charges are added. Ask for a final payoff verification on the day funds are sent.
  • What happens after payoff? The lender should mark the account paid, issue a satisfaction or reconveyance, and return any escrow balance to the borrower per state law and loan terms.

Final professional tips

  • Never wire funds without a confirmed phone call to a verified lender number. Wire‑fraud involving fake payoff instructions is common.
  • Keep a record of every payoff document and the final receipt showing account satisfaction.
  • Consider hiring a closing attorney or using a reputable title company for complex payoffs—especially business loans, short sales, or property transfers.

Disclaimer

This article is educational and does not constitute legal, tax, or financial advice. Rules and timelines vary by loan type, servicer, and state. Consult a qualified attorney, tax advisor, or your loan servicer for guidance specific to your situation. For federal guidance on mortgage servicing and consumer protections, see the Consumer Financial Protection Bureau (CFPB). For tax rules on cancelled debt, see the Internal Revenue Service (IRS).

Authoritative sources