Future FHA Buyers Will Get a Break

FHA mortgage loans can be pretty great because of the low down-payment requirement and relaxed qualifying guidelines. But for everyone who has taken an FHA loan before January 2015, these loans come with a hidden catch.

For most loans, when you pay the balance in full you’re charged interest through the day of payoff. It’s only fair – you’re paying for every day you have use of the investor’s money.

With current FHA loans, when you go to pay it off, you’re being charged interest through the end of the current month. If your loan pays off on the 30th, no big deal. But if your loan pays off on the 6th, you’re still charged interest through the end of the month. That’s wasted money. People selling their homes have gotten less sale proceeds because of this provision. Those refinancing out of an FHA loan have gotten a big surprise if the loan closed after the end of a month and may have had to bring in additional cash to close.

Thanks to the Consumer Finance Protection Bureau, surprises like these will be a thing of the past. The practice has been categorized as a “pre-payment penalty” and will not be allowed on new FHA loans originated after January 21, 2015.

In the meantime, if you know you have an FHA loan on your house, carefully schedule when you close your sale or refinance. Being date-wise can save you unexpected interest costs at payoff.

Tammy Engel is your local Mortgage Advisor, and has been working for your best interest since 1990. Contact her at 661/822-7325 for your purchase, refinance, or reverse mortgage.