An additional processing step required by refinances is that the loan officer or processor must acquire a payoff statement from all institutions and lenders who will be paid by the proceeds of the refinance loan. The payoff statement will indicate how much the borrower owes the creditor.
In most situations, the most important payoff statement required will be from the current mortgage lender. If the new loan is a first mortgage, that new first mortgage lender wants to ensure that the current mortgages on the property are all paid off and removed.
Payoff statements will indicate the current principal balance for the mortgage. The payoff letter will also add any late charges, administrative fees and interest due for the projected closing date. In addition, the payoff letter will also indicate a per diem—which is the daily interest charge—just in case the refinance does not close by the projected closing date.
If the borrower has an escrow account with the current lender being refinanced, that escrow account will be handled one of two ways:
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