How is the payoff of an existing loan typically represented on a closing statement?

The payoff of an existing loan is typically represented as a debit to the seller on a closing statement. This is because the seller is the one who is responsible for paying off the existing debt associated with the property being sold.

In real estate transactions, closing statements outline the financial aspects of the sale, detailing costs and credits for both the buyer and the seller. When a seller has an existing mortgage or loan, the amount owed on that loan is subtracted from the proceeds of the sale. Therefore, it represents a financial obligation that the seller must clear prior to transferring ownership to the buyer.

When the closing statement is prepared, the amount of the loan being paid off is recorded as a debit because it reduces the seller's net proceeds from the sale. This accounting practice clearly shows the financial responsibilities of both parties involved in the transaction, ensuring transparency and accuracy in how funds are distributed.