If you’ve had a Federal Housing Administration (FHA) mortgage in the past, and you prepaid your mortgage in full, your FHA-approved mortgage lender may have charged you interest through the end of the month in which you paid your mortgage in full. Perhaps you thought, “That’s not very fair. I paid my mortgage in full on August 2, so why do I have to pay interest through August 31?”

After all, most lenders only charge interest through the date that borrowers pays their conventional mortgage loan in full. And even if you and thousands of other FHA borrowers were notified of this policy at the time of your loan closing, it still may seem unfair to pay that extra in interest charges.

While the Department of Housing and Urban Development (HUD)/FHA has had this policy in-place for many years, on August 26, 2014, HUD/FHA decided to eliminate post-payment interest charges for all FHA-insured, single family mortgage loans that close on or after January 21, 2015. The new rule says mortgage lenders must accept loan prepayments at any time and in any amount, and they can’t charge you a prepayment penalty.

This new ruling is in response to the prohibition of prepayment penalties by the Consumer Financial Protection Bureau’s (CFPB) Ability-to-Repay and Qualified Mortgage Standards under the Truth in Lending Act.

Also, the monthly interest for the mortgage must be calculated on the actual unpaid balance as of the date the prepayment is received – and not as of the next installment due date.

At the same time the FHA announced this new post-payment interest charge rule, they also announced a new rule that will help borrowers get early access to information to help them make decisions about their FHA mortgages, such as:

• Lenders have to give borrowers, who have FHA-insured ARMs, a 60- to 120-day advance notice about adjustments to their monthly payment.
• Interest rate adjustments must be based on the most recent index value available 45 days before the date of the rate adjustment instead of the current 30-day notice.

These policies will provide borrowers with an FHA-insured mortgage consistent protections. And the elimination of the post-payment interest charges will help save you money, if you decide to prepay your mortgage in full.

If you’re a first-time homebuyer or you’re moving to a new home, and you need a FHA mortgage loan, or you want to refinance your existing FHA mortgage, contact the mortgage specialists at Grandview Lending in Indianapolis. They can help you decide which loan option is best for your needs.

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