In one sentence
A servicer's statement of the exact amount required to pay a loan in full as of a given date, including principal, interest, and any fees or premiums.
The longer version
Payoffs happen at sale, refinance, or maturity. The letter states the precise number, dated and often with a per-diem, so the paying party can wire to the penny.
Prepayment premiums, yield maintenance, or defeasance costs show up here, which is why borrowers model exit cost long before they request a payoff.
Common questions
- What is a payoff letter?
- A servicer's statement of the exact amount needed to repay a loan in full as of a date, including principal, interest, fees, prepayment premiums and per diem interest.
- Why does a payoff letter need a per diem?
- Because interest keeps accruing until the funds arrive. The per diem lets the title company adjust the payoff if closing moves by a day or two.
- Who requests the payoff letter?
- Usually the title company or new lender handling the closing, with the borrower's authorization. It is a condition to funding a refinance or sale.
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