Servicing

How to calculate a mortgage payout (discharge) statement

A worked example for private lenders: principal, accrued interest and per diem, arrears, fees and prepayment penalty — and the rounding mistakes that make payout figures disagree.

A payout statement tells the borrower’s lawyer exactly how much will discharge the mortgage on a given date. Get it wrong and either the lender is short or the borrower overpays — and the lawyer will notice.

The parts of a payout statement

  1. Principal outstanding on the payout date.
  2. Accrued interest from the date interest was last paid to the payout date.
  3. Arrears — any missed payments, plus any interest charged on them.
  4. Fees and charges — discharge or administration fee, outstanding NSF or late fees, legal or registration costs.
  5. Prepayment penalty, if the mortgage terms allow one (for example, three months’ interest on a closed loan).
  6. Per diem after the good-until date.

A worked example

A first mortgage of $420,000 at 8.99% interest-only. Interest is paid to October 3; the payout date is October 15 (12 days).

Item Calculation Amount
Principal $420,000.00
Per diem 420,000 × 8.99% ÷ 365 $103.45
Accrued interest, 12 days 420,000 × 8.99% × 12 ÷ 365, rounded once $1,241.36
Three months’ interest (if a penalty applies) 420,000 × 8.99% ÷ 4 $9,439.50

Notice the accrued interest: $1,241.36, not 12 × $103.45 = $1,241.40. Rounding the per diem first and then multiplying adds an error that grows with the number of days. Calculate the period once and round once.

Add arrears (for example two missed payments and the interest charged on them) and fees, and the total to discharge is the sum. After the good-until date, add the per diem for each extra day.

Splitting the payout between lenders

When several lenders fund the loan, the payout is also split: each lender receives the principal they funded and their share of interest at their rate; the spread and fees belong to the company. The split should add back to the total exactly.

Mistakes to avoid

  • Using a rounded per diem × days for the accrued interest.
  • Forgetting interest charged on arrears, or charging it at a different rate than the mortgage allows.
  • Applying a penalty the mortgage terms don’t permit, or a penalty larger than the interest left to maturity.
  • Not reissuing the statement when a scheduled payment clears before the payout.

How Amortivo handles it

Amortivo produces payout statements from the loan’s own ledger with accrued interest rounded once, arrears and fees itemized, the penalty rule from the loan’s terms, the per diem after the good-until date and the split back to each lender. If a rate change is scheduled, interest is split at its effective date. See loan servicing.

Common questions

What is a per diem on a payout statement?

The interest that accrues for one day on the outstanding principal (principal × annual rate ÷ 365). It is added for each day the payout arrives after the statement's good-until date.

Should accrued interest be calculated from a rounded per diem?

Calculate the accrued interest once for the whole period (principal × rate × days ÷ 365) and round once. Multiplying a rounded per diem by the number of days can be off by several cents.

This guide is general information for Canadian private lenders, not legal, tax or accounting advice. Confirm requirements with your regulator, lawyer or accountant.

See your loan book in Amortivo.

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