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Handling Prepayments: Eliminating Post-Payment Interest Charges
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 BCFP’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 BCFP’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.
FHA Info #14-50, August 26,2014
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