The Federal Housing Administration is overhauling a long-held policy of charging extra interest payments on loans it insures to borrowers who have already paid off the principal debts on their mortgages.
FHA has permitted its lenders to charge borrowers a full month of interest when they sell or refinance a home, even if borrowers had paid off the mortgage weeks prior to the end of the month. For example, if borrowers went to closing on an FHA loan on Sept. 3, lenders would be allowed to continue to charge them interest through Sept. 30.
Beginning Jan. 21 of 2015, new FHA mortgages will require lenders to collect interest only on the balance remaining on the date of closing for a home sale or refinancing. However, sellers and refinancers who currently have FHA loans and expect to close before Jan. 21 likely won’t see much benefit from the new policy.