Paying Off Your Mortgage When You Sell
How your mortgage is paid off when you sell: payoff letters, per-diem interest, prepayment penalty limits, NY satisfaction rules and the escrow refund.
6 min read · Updated
Yes, your mortgage gets paid off at the closing when you sell: the closing agent or your attorney sends the lender the exact amount on a payoff letter straight out of the buyer's money, and you receive what is left. The payoff is almost always a little higher than the balance on your statement, because it adds interest up to the payoff day and any fees you owe.
Here is how the payoff letter works, what drives the number, and what you should get back afterward, with a worked New York example.
At a glance
- Payoff statement deadline
- 7 business days
- After the servicer gets a written request (Reg Z)
- What it adds to your balance
- Interest to payoff day + fees
- Sometimes a prepayment penalty
- Prepayment penalty cap (most loans since 2014)
- 2% / 2% / 1%, then none
- Only on certain fixed-rate qualified mortgages
- Escrow refund
- Within 20 business days
- Weekends and federal holidays excluded (Reg X)
- NY satisfaction of mortgage
- Within 30 days
- Lender owes you $500–$1,500 if late (RPAPL §1921)
How the payoff letter works
A payoff letter (or payoff statement) is your servicer's written statement of the total needed to pay the loan in full as of a specific date. Under federal Regulation Z, the servicer must send an accurate one within a reasonable time and no later than seven business days after it receives a written request from you or someone acting for you, such as your attorney. Longer timelines are allowed only in cases like bankruptcy, foreclosure, reverse or shared-appreciation mortgages, or natural disasters.
- 1
Your attorney orders it after the contract is signed
In NYC, the seller’s attorney usually requests the payoff once a closing date is in sight. You sign an authorization so the servicer will talk to them. - 2
It is good through a stated date
The letter shows the total due through a “good through” date and a daily interest figure (the per diem) to add for each extra day. If closing moves, the payoff changes. - 3
An updated letter before closing
Attorneys usually get a fresh payoff close to the closing date so the wired amount is exact. If you make a regular monthly payment after the first letter, tell your attorney. - 4
Funds are sent at or right after closing
The closing agent wires the payoff using the instructions on the letter. Confirm those instructions by phone with the servicer at a number you already know; payoff wires are a target for fraud.
Why the payoff isn't your balance
The Consumer Financial Protection Bureau explains that your payoff amount is different from your current balance because it includes interest due through the day you pay off the loan, plus any fees you have been charged but not paid. Mortgage interest is paid in arrears: your October 1 payment covered September's interest. So if you close on October 20, the payoff includes 20 days of October interest that no monthly payment has covered yet.
Per-diem interest is roughly your balance × your rate ÷ the number of days in the year the lender uses. Use the per-diem figure on your payoff letter rather than your own math, because lenders differ in how they count days.
| Line | What it is |
|---|---|
| Unpaid principal | The balance after your last payment |
| Accrued interest | Interest from the last paid-through date to the payoff date |
| Per diem | Interest for each additional day past the good-through date |
| Late charges or unpaid fees | Anything assessed but not yet paid |
| Prepayment penalty | Only if your loan has one and you are still inside the penalty period |
| Recording or release fees | If your servicer charges them; varies |
| Escrow balance | Either netted against the payoff or refunded to you after payoff; Reg X allows both |
Prepayment penalties
Most mortgages today have no prepayment penalty, but check your note. For most home loans made since federal ability-to-repay rules took effect in January 2014, Regulation Z allows a penalty only if the loan has an APR that can't rise, is a qualified mortgage, and is not a higher-priced loan. Even then the penalty cannot apply after three years and can be no more than 2% of the balance prepaid in the first two years and 1% in the third year. A lender that offers a loan with a penalty must also have offered you an alternative without one. Older loans, investor loans and business-purpose loans may have different terms.
After closing: the satisfaction, the escrow refund, the paperwork
Closing day
Payoff wired
The loan is paid in full. Keep the closing statement showing the payoff amount.Within 20 business days
Escrow refund
The servicer must refund what is left in your escrow account (excluding weekends and legal holidays), unless you agree to move it to a new loan with the same servicer.Within 30 days
Satisfaction of mortgage (house or condo)
In New York the lender must sign a satisfaction and present it for recording (or give it to you if you ask). The note and mortgage go back within 45 days.At closing or within one month
UCC-3 termination (co-op)
A co-op loan is secured by your shares, not a mortgage. The lender brings the termination and your stock certificate and lease to the closing if properly asked, or files the termination within one month if paid outside a closing.
Check the record yourself a couple of months later. In NYC, recorded satisfactions show up in ACRIS; see ACRIS mortgages, assignments and satisfactions. If you also have a home equity line, make sure it is paid off and closed, not just paid down to zero.
Worked example: what you walk away with
You sell a condo in Queens for $900,000 and close on October 20. Your mortgage balance after the October 1 payment is $412,350 at 6.25%. The rate, balance, commission and attorney fee below are examples, not typical figures.
| Item | Amount |
|---|---|
| Sale price | $900,000.00 |
| Mortgage principal | − $412,350.00 |
| Interest Oct 1–20 (≈ $70.61 per day × 20) | − $1,412.20 |
| NYS transfer tax (0.4%) | − $3,600.00 |
| NYC RPTT (1.425%, price over $500,000) | − $12,825.00 |
| Broker commission (example: 5%) | − $45,000.00 |
| Seller’s attorney (example) | − $3,000.00 |
| Net to you at closing | $421,812.80 |
| Escrow refund, arriving later (example) | + $2,400.00 |
The per diem here is $412,350 × 6.25% ÷ 365. A real closing also adjusts common charges or property taxes between you and the buyer and may include other fees. Run your own numbers in the seller net proceeds calculator, and see NYC seller closing costs for the full list.
What if you owe more than the sale price?
If the payoff plus closing costs is more than the price, you have to bring the difference to closing, or ask the lender to accept less (a short sale). Lenders don't have to agree, and a short sale takes time. If you are behind on payments, read behind on your mortgage in New York before you list.
Re-verified 2026-10-12. CFPB Ask CFPB 205: payoff includes interest through the payoff date and unpaid fees, and may include a prepayment penalty. Reg Z 1026.36(c)(3): accurate payoff statement within a reasonable time, no more than seven business days after a written request by the consumer or someone acting for them; exceptions for bankruptcy/foreclosure, reverse and shared-appreciation mortgages, natural disasters. Reg Z 1026.43(g): penalty only if fixed APR, qualified mortgage and not higher-priced; not after three years; max 2% of the balance prepaid in years 1-2 and 1% in year 3; alternative loan without a penalty must be offered. Reg X 1024.34(b): escrow refund within 20 days excluding weekends and legal public holidays, or credit to a new escrow account if the borrower agrees; netting against the balance permitted (commentary), so the table now says so. RPAPL 1921: satisfaction within 30 days, note and mortgage returned within 45 days, $500/$1,000/$1,500 at 30/60/90 days, lenders making fewer than five loans a year excluded. NY UCC 9-513(e): co-op termination and cooperative record brought to settlement on demand, or filed within one month if paid outside a settlement. RPTT 1% up to $500,000 and 1.425% above (DOF); NYS $2 per $500 = 0.4% (DTF). Example arithmetic checked: per diem 412,350 x 6.25% / 365 = $70.61; net $421,812.80.
Sources
- What is a payoff amount? Is my payoff amount the same as my current balance? · Consumer Financial Protection Bureau (accessed October 12, 2026)
- Regulation Z §1026.36(c)(3): Payoff statements · Consumer Financial Protection Bureau (accessed October 12, 2026)
- Regulation Z §1026.43(g): Prepayment penalties · Consumer Financial Protection Bureau (accessed October 12, 2026)
- Regulation X §1024.34(b): Refund of escrow balance at payoff · Consumer Financial Protection Bureau (accessed October 12, 2026)
- Real Property Actions and Proceedings Law §1921: Discharge of mortgage · New York State Senate (accessed October 12, 2026)
- Uniform Commercial Code §9-513: Termination statement (incl. NY cooperative interest rule) · New York State Senate (accessed October 12, 2026)
- Real Property Transfer Tax (RPTT) · NYC Department of Finance (accessed October 12, 2026)
- Real estate transfer tax · NYS Department of Taxation and Finance (accessed October 12, 2026)
General information, not legal, tax or financial advice. Rules change; confirm with the agency or a professional before you act.