Q. I’m going into the fourth year of a 30-year mortgage. I’m seventy-seven years old and living on a fixed income.

I have enough cash to pay off the mortgage, and then I wouldn’t have to spend $600 for each monthly payment. I’m thinking that I’m better off having the additional cash flow than paying off a mortgage when I’m 103.

When is the best time of the month to pay off this mortgage and do I need an attorney to close this deal? My loan has no prepayment penalty.

A: In general, you have to keep a couple of things in mind when paying off your loan. Interest is almost always paid in arrears on a mortgage. In other words, your loan payment on the fist day of July is for the interest owed for the month of June.

Frequently, homeowners receive a monthly statement from their lender indicating what they owe on their loan, and how much interest they’re paying. They think that if they pay the balance due, they will pay off the loan.

But the payoff is usually more than what is indicated on the statement. Why? The lender’s monthly statement does not typically include interest owed from the last payment date.

You shouldn’t need an attorney to payoff your loan. But you will need to order a “demand letter” or a “payoff letter” from your lender.

The demand letter or payoff letter will indicate the exact amount owed on your loan through a specific date. If the date furnished in the letter has already passed, almost all letters will include a “per diem,” or per day, amount owed on the loan to pay it off.

Most lenders will require that the payoff be made using a cashier’s check or wire transfer of funds. Make sure you are careful in following the procedures to payoff your loan. You should send the payment to the lender by a reliable overnight service. That way, you’ll make sure it gets there and have a way to track your payment.

Other than an FHA (Federal Housing Administration) loan or a home with private mortgage insurance (PMI), you can pay off your loan at any time.

In general, FHA loans are paid off on the first day of a month. If you pay off an FHA loan at any other time, you will pay for a whole month’s worth of interest even if your payoff is early in the month. If your loan has PMI, you will pay on a month to month basis for the PMI charge. Therefore, it is best to payoff your loan at the end of the month or, at the latest, the first day of the following month.

Published: Aug 27, 2004