The interest on your home mortgage is paid in arrears. This means that you pay

interest for each month with the next mortgage payment (meaning you pay the interest

for January with the payment on February 1). Therefore, whenever you pay off your

loan, you will owe a certain amount of interest to your old bank from the last

payment up until the closing.

This amount will vary depending on the interest rate of the loan you are paying off

and the day you close your new loan or sell your house. A good guess is to add about

75% of your monthly payment on the old loan to the current principal balance of that

loan. This should give you a good cushion and be close to the final figure for your

payoff amount.

The other side of interest in arrears is that when you close on a new loan, you

\”skip\” a payment, meaning that the first of the month passes one time without you

paying a mortgage payment. The truth is that between the higher payoff and interest

per diem or \”prepaid interest\” on your new loan, you have already paid those 30 days

of interest.

I am always available should you have any refinancing questions on documentation or

any other aspect of mortgages. Please feel free to leave a comment.