FHA Mortgage Payoff Change Effective January 21, 2015

Have you paid off a FHA mortgage and noticed you were charged additional interest through the end of the month, even if your mortgage was paid off earlier than the last day of the month?  This post payment interest charge is going away in 2015 and it will allow FHA mortgage holders to only be charged interest through the date of prepayment, not the interest as of the next installment date.  This is a small win for the consumer looking to payoff or refinance their existing FHA mortgage.  For information on the benefits of paying off your existing FHA mortgage, feel free to contact me for a courtesy analysis of your mortgage.  



from HUD
The Handling Prepayments: Eliminating Post-Payment Interest Charges final rule revises FHA regulations that currently allow an FHA-approved mortgagee to charge the borrower interest through the end of the month when the mortgage is paid in full before month end. The revisions to our regulations will allow mortgagees to charge interest only through the date the mortgage is paid in full, prohibiting the charging of interest beyond that date. The changes are responsive to the CFPB’s January 30, 2013 final rule, Ability-to-Repay and Qualified Mortgage Standards under the Truth in Lending Act (Regulation Z), which limits the use of prepayment penalties and broadly defines “prepayment penalty” to include FHA’s previously allowed post-payment interest charges.

FHA’s final rule adopts the policies published in our March 13, 2014 proposed rule on this topic without change, including: Notwithstanding the terms of the mortgage, mortgagees shall accept a prepayment at any time and in any amount, and shall not charge a post-payment charge; and monthly interest on the debt must be calculated on the actual unpaid principal balance of the mortgage as of
the date the prepayment is received and not as of the next installment due date.

With the publication of this final rule, FHA is prohibiting prepayment penalties for all FHA-insured single family mortgage products and programs, regardless of whether the product or program could fit into one of the circumstances where the CFPB’s final rule allows a limited prepayment penalty. This maximizes consistency among FHA-insured single family mortgage products and provides the same protections for all FHA borrowers.

The revised policies in this final rule become effective for FHA-insured mortgages closed on or after January 21, 2015.

Until next time,

Craig Turley
NMLS 80917