Time to close escrow, refinance a loan, or pay off your mortgage on an existing property? Don't assume that the lender's calculations are correct.

Lenders make frequent errors in calculating loan payoff amounts. "It's the exception, not the rule, to find one that's accurate," says Marie McDonnell, The Mortgage Counselor, in Needham, Massachusetts. Errors also commonly occur in other calculations, such as those involved in buying a home or refinancing a mortgage.

Although most mistakes are probably honest, errors can serve as profit centers for some institutions, according to one auditor. Many buyers and sellers will haggle over a $25 or $50 fee, while overlooking hundreds of dollars that could be slipping through the cracks through overpayments due to lender miscalculations.

Whether you are assuming an existing mortgage, selling your present home, refinancing or paying off your current mortgage, the calculations in the following scenarios justify close examination.

ADJUSTABLE-RATE MORTGAGES

With adjustable-rate mortgages, periodic adjustments are made to your payment amount based on a schedule. These are tied to an interest rate index plus a margin, known as the spread. It is common for institutions to miscalculate these adjustments, resulting in an inaccurate and higher payoff balance.

IMPOUND ACCOUNTS

Many high loan-to-value mortgages require that an amount above the principal and interest portion of the monthly payment be placed into an escrow account (impound account) to cover costs of future insurance and taxes. It is not uncommon for a lender to misapply the initial payments through the buyer's escrow. So be especially cautious when you are assuming a loan that requires impounding.

PAYMENTS THROUGH BUYING ESCROW

Lender miscalculations often occur in adjustable-rate mortgages, resulting in borrowers placing excess funds into escrow accounts.

Payments collected as prepayment of interest, insurance, or taxes through buying escrow can be misapplied and not credited to the intended purpose. It is not uncommon for proration calculations on these items to be miscalculated.

Small repairs may be funded through escrow, so third parties, such as termite operators or other subcontractors, may make demands for payments through your escrow. For large repairs, consider setting up a fund control, in which a third party makes sure that work is completed satisfactorily before escrow funds are released. To find a reputable fund controller, ask your lender for a reference.

MORTGAGE INSURANCE (PMI) AND (MIP)

Mortgage insurance, which is required on high loan-to-value loans (small equity loans with low down payments), can also be miscalculated through the buying escrow, thus the balance at payoff can be wrong. Government loans do not automatically refund the balance on the MIP account, so be sure the request for your refund is processed following any payoff of a government loan requiring MIP.

To ensure the accuracy of your loan balance and payoff, consider having an audit conducted on your loan at closing time. It is also financially healthy to conduct an annual check-up of your loan to be sure your dollars are accurately credited. Your escrow officer or closing agent can refer you to a loan auditor.