What a payoff statement is and how to get one

The balance column on an amortization schedule shows the principal left after each scheduled payment. It assumes every payment arrived on its due date and nothing else happened. A payoff on any other day is a different figure, for three reasons.

• Interest has accrued since the last payment. If the last payment was on the 15th and the payoff is on the 28th, thirteen days of interest are owed on the balance.
• Fees may be outstanding. A late fee that was assessed and not yet paid is still due.
• Credits may be unapplied. An extra payment that went to principal lowers the figure below the schedule.

Take the $25,000 loan at 6.00% over 36 months. After the twelfth payment, the schedule shows a balance of $17,160.13. If the borrower wants to pay off on a day twenty days after that payment, the payoff is that balance plus twenty days of interest on it, plus any fee owing. Paying the schedule balance alone leaves the loan a few dollars short and technically still open.

A payoff statement is a short document from the lender stating the amount that settles the loan on a named date. It is not an invoice and it is not a receipt. It should list:

• The principal outstanding on the date of the statement.
• Interest accrued from the last interest posting through the payoff date.
• Any fees assessed and unpaid.
• Any credits not yet applied.
• The total payoff amount on the payoff date.
• The per diem: the interest that accrues each additional day if payment arrives later.
• A good-through date, after which the statement is void and a new one is needed.
• Where and how to send the funds.

Banks issue these routinely. A private lender should issue one too, because it fixes the number both sides are working to. Without it, the borrower sends what they think is right, the lender disagrees by a small amount, and a loan that should be closed stays open over a dispute about forty dollars.

Per diem is the daily interest on the outstanding principal. It is the annual rate divided by 365, applied to the balance. On $25,000 at 6.00%, the per diem is $25,000 × 0.06 ÷ 365, which is about $4.11 a day. On a balance of $17,160.13 at the same rate, it is about $2.82 a day.

The statement quotes the per diem so the borrower can adjust if the payment lands a day or two late without needing a new statement. If the payoff on the 28th is $17,216.53 and the funds arrive on the 30th, the borrower owes two more days, about $5.64, and either adds it to the transfer or settles it separately. Past the good-through date, the lender issues a fresh statement rather than relying on the per diem, because a scheduled payment or a fee may have fallen due in the meantime.

A note that is repaid in one sum at maturity accrues interest this way for its whole life: simple daily interest on the full principal. For $25,000 at 6.00% over one year, that is $25,000 × 0.06 × 365 ÷ 365, or $1,500.00, and the payoff on the maturity date is $26,500.00.

Before asking for a payoff, read the prepayment clause in the note. It says whether the borrower may repay early at all, and on what terms. Most private notes allow prepayment in whole or in part at any time without penalty. Some permit it only with notice, often thirty days. A few charge a prepayment fee, stated as a percentage of the amount prepaid or as a fixed number of months’ interest.

If there is a fee, it belongs on the payoff statement as a line of its own. If the note is silent, state law decides, and in most states a borrower may prepay a private loan unless the note forbids it. When the parties are related and the lender does not mind early repayment, the simplest course is a short written waiver of any fee, signed by the lender and kept with the note.

The sequence is the same whether the loan is between relatives or between an investor and a business.

1. The borrower asks for a payoff statement for a chosen date, a week or two ahead to allow for transfer times.
2. The lender issues it, showing the parts listed above and the good-through date.
3. The borrower sends the payoff amount by the method stated, and keeps the transfer confirmation.
4. The lender confirms receipt in writing, on the day the funds clear, and records the payment against the loan.
5. The lender marks the loan paid in full and the balance at zero.
6. If the loan was secured, the lender files a release of the lien: a UCC-3 termination for personal property, or a reconveyance or satisfaction of mortgage for real estate, recorded where the original was.
7. The lender returns the original note marked “Paid in full” with the date and signature, or sends a signed release if the note was electronic.

In NoteHouse, the borrower requests the statement from the loan, the lender confirms the payment when it arrives, and the loan is marked paid once principal, interest and fees are all at zero. Both parties keep the executed note and the full ledger afterwards. The sequence is described on how it works.

A paid loan should leave the borrower with proof that it is paid. That matters years later, when the lender has died, the relationship has changed, or an estate is being settled and someone finds the note. The borrower should hold:

• The payoff statement and the transfer confirmation matching it.
• A written acknowledgement from the lender that the loan is paid in full, dated and signed.
• The original note marked paid, or a signed release of it.
• A copy of any lien release, with the recording or filing reference.
• The complete payment history from first payment to last.

The lender should keep the same set. A loan that ends with both sides holding the same closed record is a loan that cannot be reopened by mistake or by memory.