Understanding payoff statements, accrued interest, grace periods, and common fees for Massachusetts homeowners
One of the most common surprises during a refinance is that the payoff amount for your current mortgage is almost always higher than the loan balance on your latest mortgage statement. Many Massachusetts homeowners assume something is wrong — but the payoff is typically 100% accurate once you understand how mortgages work and how interest accrues.
Mortgage Payments Pay Interest “Backwards” — Not Forward
Instead of paying for the month ahead, each mortgage payment covers the interest that accrued during the previous month.
Example:
Your June 1st payment pays the interest that accrued in May
This means you never prepay future interest — interest continues to build daily.
How the Grace Period Comes Into Play
Most mortgages offer a grace period (often through the 15th of the month) where you can make a payment without a late fee.
Homeowners often misunderstand this period. The grace period:
🔹 protects you from late fees
❌ does not stop interest from accruing
So if you’re refinancing during the grace period, your payoff amount will include:
Last month’s unpaid interest (because payments pay backwards)
PLUS interest that accrues from the 1st of the month through the payoff date
PLUS the standard interest cushion lenders add to payoff statements
Example
Your statement shows a $350,000 balance
You normally pay on the 1st, but it’s now June 12 (still within grace period)
Your refinance payoff date funds on June 12
Interest accrues at $40/day
Your payoff will include:
Item Amount
Principal balance $350,000
Last month’s interest (unpaid) $720 (example)
June 1–12 accrued interest 12 × $40 = $480
Standard fees (recording/admin) $90
And then comes the interest cushion — see below.
The Interest Cushion: Always Added
A refinance payoff always includes an interest cushion — this is not optional and not abnormal.
Because:
Federal law requires a 3-day rescission period on primary residence refinances
Closing cannot fund until after that 3-day waiting window
Lenders do not assume payoff funds will be delivered the same day funding occurs
As a result:
Lenders typically add about one week of extra interest AFTER the rescission period ends
So the payoff demand will generally assume:
➡ payoff funding occurs ~ 7 days after the rescission period ends,
even if you intend to pay sooner.
If the payoff is delivered earlier than that estimated date, the lender refunds the unused interest after the discharge is completed.
This cushion is required to ensure the loan is fully satisfied and that no additional payoff demand must be issued.
Other Fees That May Appear on a Payoff Statement
Fee Reason
Recording fee for discharge Registry of Deeds charge to release the mortgage
Reconveyance/discharge prep fee Fee for preparing the discharge
Payoff demand / fax fee Charged by some lenders for issuing payoff
Courier / overnight fee Sending original documents
PMI adjustments If Private Mortgage Insurance premiums are owed
These fees are usually modest but add to the payoff amount.
The Bottom Line
A refinance payoff will almost always be higher than your mortgage balance because:
✔ Payments pay interest backwards, covering the previous month
✔ Interest accrues daily, even during the grace period
✔ The payoff includes last month’s interest + current month interest
✔ A one-week post-rescission interest cushion is always added
✔ Administrative and recording fees complete the discharge
Nothing is wrong — this is exactly how mortgage payoffs are calculated throughout Massachusetts and nationwide.
Refinancing in Massachusetts? We’re Here to Help.
A refinance should feel like a smart financial move — not a confusing math equation.
The Law Offices of Scott M. Syat, P.C. provides clear communication, fast turnaround, and stress-free refinance closings from start to finish.
📞 Call (617) 773-3500
for trusted representation in Massachusetts refinance closings.
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