Reduction Certificate

Posted in Finance, Accounting and Economics Terms, Total Reads: 974

Definition: Reduction Certificate

It is a document that a lender signs stating the remaining, outstanding amount on a mortgage loan. Real estate that is encumbered by mortgages is in most cases sold even before the debt is satisfied. This sale of the property leads to an inflow of cash which is used to pay off the existing mortgage. However, at times the new buyer may include the loan as a part of the purchase price and hence look to obtain a reduction certificate from the lender. This specifies the exact amount of money that is due on the mortgage. It is also known as “payoff statement”.

This option of assuming the existing mortgage is even more appealing to the buyer in times of high interest as new mortgage will be available at higher rates. In such cases, the buyer is able to secure lower rates of interest associated with existing mortgage.

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