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Check your mortgage company rules before trying to pay off your loan

Here’s a quick tip I learned the hard way. As some of you know, we did a dumb thing a little over 6 years ago and both financed 100% of our home purchase and also opted for a 5/1 interest-only loan (for the first 80%), all while we could barely afford the house we were buying on our salaries.

Well, it’s 6 years later, and we have excellent news. We’ve paid off about $1500 of our first mortgage! No wait, that’s not the good news. The good news is that we’ve been fortunate enough to have, and keep getting, good, well-paying jobs as well as get a decent amount of side-income from some websites such as this one.

With that income, as well as tightening our belts and cutting expenses, we’ve been able to pay off over $110,000 in consumer debt and student loans. As of November 2009, we’ve been debt-free except for our mortgages…but that’s going to change soon, sort of. In addition to paying off all that debt, we’ve been focusing on paying off our second mortgage, which was almost $80,000 (we live in D.C.), which is a high-interest loan and stood between us and 20% equity in our home.

Well, we were supposed to have paid off the second mortgage right about now. I sent in the final payment of about $5k well in advance of month-end, and then kept checking the lender’s website to see the magic $0. But day after day came and it kept showing the same amount. Then I noticed that the first mortgage payment got credited, so I called the lender.

Know how to pay off your mortgage properly!

What I found out, although I don’t know how I was supposed to know this as I thought every payment was handled the same, was that the mortgage company requires a certified check and a payoff letter for the final payment. They bounced back my check, and I had to quickly send a check for the regular payment just to make a payment within the grace period. So now I have to wait for their payoff paperwork to come, go to the bank to get a certified check and then mail them in.

My biggest disappointment was that I got my wife so pumped up that we only had one loan left (which will probably never get paid off), and then have to let her down that I screwed up and didn’t follow the rules. Well, shame on me for assuming this was like any other payment. What happens if I sent just enough to have 1 cent left on the loan? Would they require a certified check then?

So, while I was hoping to surprise you all with the news that we paid off another $80,000 in debt in just 6 years (along with the other $110,000), I have to wait another month or so. But at least I was able to inform you enough to call your own mortgage company to find out their rules on loan payoffs.


Finally, some of you may be coming to this posting looking to fund your next home.  If you are interested in refinancing or want to take out a mortgage, consider applying at USAA.  They have an excellent customer service record and offer products that won’t rip you off.  Click here to get started.

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Clever Dude

5 Comments

  • A certified check is usually the case when you pay off any loan. The trick is to make an extra payment the normal way for the majority of the balance so that it is as close to $0 as possible. Then request your payoff amount that you will need with a certified check. Your overall payoff amount will be lower this way because they typically charge you 10 days extra interest on the payoff amount.

  • @Angie, I wouldn’t say that a certified check is required for any loan. I’ve gone through quite a number of car loans (and actually paid off 5 of them) and none of the banks required a certified check. I just sent the final payment, whether it was $200 or $12,000. The larger amounts took longer to pass through the system, but this is the first time a check was sent back.

  • Some sort of hoops-jumping is usually required for closing out mortgage and equity loans because banks have to satisfy the various hoops requirements of others- for example, the lien release needs to be recorded with the mortgagees county government. The certified check thing seems a little excessive, but it is always a good idea to check in before making a payoff.

  • Just paid off a loan at Everhome Mortgage. I sent in three large payments from two different banks. The final payment was not applied to the principal when I looked online. I called them to check status. They said that they may or may not accept the final large payment and said the decision would be made within 5 days. Two days later I see that my loan is paid off online so good news. I think ING bank may have saved me since the payment is done electronically if possible and for Everhome it was. Since the final electronic transfer did not “bounce back” I think that is what saved me. IE: it was not like they could return a paper check. They would have had to cut me a check since they took the funds into some holding account. I think this may be a loophole and was a way around paying for a wire or the cost for a cashiers check and mailing fees. The final payoff document they sent did not say anything about electronic payments although they could have interpreted that as a check. Might have just been lucky and my call to them helped get it through. Glad it is over!

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