August 27, 2014
According to the press release HUDNo.14-104, titled, “FHA To Eliminate “Post Payment” Interest Charges, “borrowers who prepay their FHA-insured mortgages will not have to make interest payments beyond the date their mortgage is paid in full.”
A new FHA rule known as “Handling Prepayments: Eliminating Post-Payment Interest Charges”, will apply for FHA mortgages closed on or after January 21, 2015. According to the press release, the new rule, “explicitly prohibits lenders from charging borrowers post settlement interest, which is broadly defined as a ‘prepayment penalty’ by the Consumer Financial Protection Bureau (CFPB), for all FHA Single Family mortgage products and programs.”
This is an important development for borrowers trying to calculate the long-term cost of their FHA home loan–the elimination of post-payment interest charges can help borrowers save money. And when it comes to looking at the long-term costs and financial obligations associated with borrowing, the FHA has also announced a new rule designed to help borrowers get “early access to information when making decisions about their FHA mortgages.”
The press release states, “Effective for FHA-insured Adjustable Rate Mortgages (ARMs) originated on or after January 10, 2015, this rule makes two revisions to FHA’s ARM Program. It requires lenders:
–To provide borrowers of FHA-insured ARMs with at least a 60-day but no more than 120-day advance notice of an adjustment to their monthly payment. FHA currently requires a 25-day advance notice.
–To base an interest rate adjustment that results in a corresponding change to the borrower’s monthly payment on the most recent index value available 45 days before the date of the rate adjustment (commonly referred to as a ‘look back period’). FHA currently requires a 30-day look-back period.”