Mortgage Interest and Your Payoff Amount

mortgage interest puzzleWhen we obtain mortgage payoffs, clients often question the amount of the payoff.  They frequently are looking at their last mortgage statement and wonder why the payoff is higher.
Almost always, it is because of the daily interest or “per diem” and they do not understand how the interest is calculated for the mortgage.
Interest will accrue from the date of the last payment due date to the date of the payoff.  Normal industry practice is to collect a few additional days of interest beyond the closing date in case of delays.
How is interest on your loan calculated:
a.)  In advance?
b.)  In arrears?
c.)  Prorated for the month?
d.)  For the due date?


The answer is b).
Interest is paid in arrears.  When you make your mortgage payment for August, it will contain interest for the month of July.

Note: No legal advice or suggestions are being given.
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