My Mind on Mortgages

Are you considering refinancing your existing mortgage?  If so you may be interested to learn that the amount of money it will take to satisfy your existing mortgage (known as the “pay-off amount”) will be MORE than the principal amount you owe.  Why?

Your existing mortgage lender will not only request that you pay-off the principal balance but also the per diem interest that has accrued from the date of your last mortgage payment.

For example, let’s assume you have a mortgage with a remaining principal balance of $250,000 and an interest rate of 7% ($48.61 per day) and you are planning on refinancing it.  The scheduled close date is set for November 15th.

When you go to close, your pay-off amount will be $250,729.17 ($250,000 + $48.61* 15 days)

Therefore, your pay-off amount is equal to:

Pay-off amount= Principal amount + per diem interest

As a side note, the new lender will collect per diem interest on the new mortgage from November 15th- November 30th which should be reflected on your good faith estimate provided by the new lender.

Keep in mind that when you refinance you effectively “skip” a payment.  The per diem interest that is collected through the closing essentially is the interest that otherwise would have been paid had you not skipped a payment.