This is the eleventh installment in an ongoing series on mortgage basics. On my mortgage website, I cover a host of topics on my frequently asked questions page. Since this is the most popular page on my site, I thought it might be a nice way to begin my blog. You can find the entire list of FAQs here: Arizona Mortgage Pro FAQs. I will continue this series covering one topic per post.

Why is my payoff higher than the balance on my current loan?

The interest on a home mortgage is paid in arrears. This means that you pay interest for each month with the next mortgage payment (you pay the interest for January with the payment on February 1). Therefore, when you pay off your loan, you will owe a certain amount of interest to your old bank from the last payment up until the closing. This amount will vary depending on the interest rate of the loan you are paying off and the day you close your new loan or sell your house. A conservative estimate is to add about 75% of your monthly payment on the old loan to the current principal balance of that loan. This should give you a good cushion and be close to the final figure for your payoff amount. The flip side of interest in arrears is that when you close on a new loan, you "skip" a payment, meaning that the first of the month passes one time without you paying a mortgage payment (this is not the case if you receive an interest credit at closing). The truth is that you are not skipping a payment, you just paid the interest at the closing in advance (known as prepaid interest).

Thanks for reading my blog!

John Moran

Senior Loan Officer

3920 S Rural Rd #110 Tempe, AZ 85282

Direct: 480-300-4520

Fax: 602-904-7741

Website: www.azmortgagepro.com

NMLS#1059293 AZ#LO-0924433