A Mortgage Payoff Is Not the Same As The Balance Owed
As a Delaware real estate lawyer, I've noticed that when sellers get to the settlement table, they are sometimes surprised because they weren't expecting the payoff to their mortgage company to be so high. They pull out their most recent statement, and they see that there's a difference between the amount shown on the statement and the amount on the HUD-1 settlement statement.
The reason for these 2 different figures is that the amount needed to pay off a mortgage is not the same as the principal balance on a mortgage. In the following example. let's assume that the settlement date is May 4, 2010. Let's also assume that the last mortgage payment made by the sellers was their payment that was due April 1, 2010. The statement that reflects the April payment having been made shows the principal balance that's owed before the May payment is due.
It's important to understand that whenever you make a mortgage payment, you're paying interest for the use of the lender's money for the previous month. When you made the April mortgage payment, the interest portion of that payment was for the period March 1, 2010 to March 31, 2010. If you made your May mortgage payment before you came to settlement, then the payoff would be the principal balance after the May payment, plus interest on that balance from May 1 to the day they receive the payoff. With a May 4 settlement date, you're probably looking at interest from May 1 to May 5.
However, if you didn't make your May mortgage payment before coming to settlement, the payoff would be the principal balance after you made the April payment, plus interest from April 1 to May 5. It's all this additional interest that explains the big difference between the balance on your statement and the amount needed to pay off the mortgage.
If you're thinking of selling your house, you may wish to consult with an experienced real estate lawyer before you put your house on the market.
