About That FHA Prepayment Penalty

News that FHA will eliminate a prepayment penalty starting next year has been widely reported. It’s a move NAR has been seeking for some time because it will relieve borrowers of a financial hit that’s entirely out of their control and also bring the agency’s policies in line with other federal agencies that backstop mortgages. Perhaps most importantly, it will align the agency’s policies with the qualified mortgage rule (QRM), which defines what the federal government considers a safe home mortgage loan.

1. NAR hopes to get mortgage cancellation relief extended in the last weeks of the congressional session 
2. NAR scores a win as FHA agrees to stop allowing lenders to charge interest–a kind of prepayment penalty–when borrowers pay off their FHA backed loan before the end of the month 
3. It’s easier than you think to run afoul of copyright laws when you use content on tour website. NAR Legal Affairs explains 
4. Pending sales are at their highest level in a year, suggesting solid sales as 2014 winds down

What’s being eliminated is an interest-rate charge. For FHA borrowers that pay off their mortgage before the end of the month, the lender is allowed to charge to the borrower the interest rate costs on the loan from the day the loan is retired until the last day of the month. So, if a borrower paid off the loan on Sept. 10, the penalty would be 20 days of interest payments. That can be hundreds of dollars. Once the change takes effect, on Jan. 21, 2015, lenders will no longer be able to apply that interest charge to the borrower.

NAR continues to work with FHA on other matters. A big point right now is getting some improvement in FHA’s policies on condominium financing. It’s too difficult for many condo projects to get the stamp of approval that’s needed for people who want to buy a unit in the project to get FHA financing.

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Todd Moeller
Seven Gables Real Estate
5481 E Santa Ana Canyon Road
Anaheim Hills, CA 92807
[email protected]
(714) 404-9540
BRE#: #01762788