Q: We refinanced our first mortgage and paid it off. We were charged various fees at the time of paying off our mortgage.

What are these fees and why did we have to pay them? Why was an escrow deposit applied and added to the pay-off balance?

A: To payoff a mortgage, a homeowner needs to contact his or her lender and request a payoff letter (sometimes called a demand letter). Frequently, lenders charge a fee for processing the payoff letter request. Some lenders charge a small fee of $5 dollars and others up to $60.

In addition to this processing fee lenders also charge a fee to fax the payoff letter to you. Once again the fee can range from $5 to $60.

Once you payoff your loan, the release of the mortgage must be filed. Many lenders will send the release of the mortgage directly to the county recorders office and they will charge the “release of lien” fee in advance.

If your lender has a tax or insurance escrow, it may need to reconcile the amounts paid or owed to the escrow before giving you a payoff letter.

A tax or insurance escrow is set up to have you, the homeowner, send monthly payments to the lender to enable the lender to pay the real estate taxes and insurance bills when they are due.

To pay this bill, the lender has to make sure it has enough cash from you. If for some reason, the lender did not have enough money in the account and the lender paid the bill, you, the home buyer, would owe the lender the difference. If you order a payoff letter before you have repaid the amounts owed to the lender, the lender will have to add this amount owed to the payoff letter.

One final note, most mortgage loans are paid by the homeowners in arrears — that is the interest on the loan for the current month is paid on the first day of the next month. When a loan is paid in this manner, if a payoff date is the fifth day of a month and the homeowner did not pay the mortgage bill for the first day of that month, the homeowner will need to pay the interest for the entire prior month plus the five days of the current month, or a total of about 35 days of interest.

Sept. 20, 2004.