A mortgage payoff indemnity agreement, commonly known as an MPIA, is a legally binding contract between a borrower and a lender. This agreement is usually signed when a borrower decides to pay off their mortgage before the agreed-upon date, which is known as the maturity date.
The purpose of an MPIA is to protect the lender from any potential losses that may arise due to the borrower paying off their mortgage early. This is because the lender makes money on the interest payments made by the borrower over the life of the loan. When the mortgage is paid off early, the lender loses this income.
To compensate for this loss, the borrower must pay an MPIA, which is a fee based on a percentage of the remaining principal balance of the mortgage. The fee is typically between 1% and 5% of the remaining balance. This fee is paid to the lender as a form of compensation for the lost interest income.
It is important to note that an MPIA is not always required. It is usually only required when a borrower decides to pay off their mortgage early, and the lender anticipates a loss of income due to the early payoff.
When considering an MPIA, it is important to read the contract carefully to understand the terms and conditions of the agreement. It is also advisable to discuss the agreement with a financial advisor or a lawyer to make sure it is fair and reasonable.
In conclusion, a mortgage payoff indemnity agreement is a contract that protects the lender from potential losses when a borrower decides to pay off their mortgage early. While an MPIA may not always be required, it is important for borrowers to understand the terms and conditions of the agreement before signing it. With the right knowledge and guidance, borrowers can make informed decisions when it comes to paying off their mortgage.