The Federal Housing Administration (FHA) has 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 January 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 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.

Read FHA’s rule: Adjustable Rate Mortgage Notification Requirements and Look-back Period for FHA-insured Single Family Mortgages.

Together, these new rules are responsive to the regulations implementing the Truth-in-Lending Act (Regulation Z) as revised last year by the CFPB. These policies provide consistent protections for borrowers with FHA-insured mortgages, while  ensuring borrowers have early access to information when making decisions about their FHA mortgages.