WASHINGTON – Aug. 27, 2014 – The Federal Housing Administration (FHA) today announced that borrowers who prepay their FHA-insured mortgages will not have to make interest payments beyond the date their mortgage is paid in full.
FHA's rule, Handling Prepayments: Eliminating Post-Payment Interest Charges, applies for FHA-insured mortgages closed on or after Jan. 21, 2015. This 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.
In addition, FHA announced a new rule to ensure borrowers have early access to information when making decisions about their FHA mortgages. Effective for FHA-insured Adjustable Rate Mortgages (ARMs) originated on or after Jan. 10, 2015, this rule makes two revisions to FHA's ARM Program. It requires lenders:
″ To provide borrowers with FHA-insured ARMs 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.
The new rules result from regulations in the Truth-in-Lending Act (Regulation Z) as revised last year by the CFPB.
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