by A.W. Berry

Created on: December 14, 2009   Last Updated: March 09, 2010

Your mortgage payoff amount can be determined by 1) looking at your mortgage amortization schedule, 2) calling your mortgage lender, and 3) requesting specific loan payoff amounts and dates in writing. The mortgage payoff amount may include outstanding debt plus any interest, fees and escrow taxes owed on a mortgage loan contract.

Some methods for determining mortgage payoff amounts are discussed below. Determining your exact mortgage payoff amount may vary between lenders due to differences in lending policy, amortization formulas, interest rate calculations, billing cycle and fee structure. For this reason online mortgage payoff calculators may not be exact due to other fees, and/or a difference in the way the calculator performs interest calculations. Nevertheless, mortgage calculators are useful for estimating mortgage payoff amount.

I: THE AMORTIZATION SCHEDULE

The amortization schedule is very helpful in determining your mortgage payoff amount because it shows you how much is due after each billing period for the life of the loan. If you don’t have a recent statement but do have a loan amortization schedule that includes a full payment schedule, the early mortgage payoff amount may be viewable on the column stating total remaining balance of the mortgage.

Amortization schedules often have high front end interest payments and non-adjusted periodic payments. In other words, the periodic amount due does not decline alongside the balance of the mortgage, rather, more principal is paid and less interest is paid over time.

Interest can be calculated in more than one way. 1) the total interest can be calculated and divided by the number of payments or 2) the interest can be calculated monthly. The latter leads to a much higher interest due i.e. the shorter the compounding period, the higher the amount due. For example, a $200K mortgage with a 5% interest rate charged once and divided by a 15 year period loan would be a total of $10,000 divided over the life of the loan. However, if the interest is calculated annually, around $10,000 would be closer to the amount due in the first year alone.

II: HOW AMORTIZATION IS CALCULATED

Amortization is calculated by 1) taking the total amount of the mortgage due, 2)  multiplying that amount by the interest rate due divided by the compounding period ex. monthly 3) adding that interest to the base amount divided by the term of the loan in months and 4) repeating the process for each month.

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