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By G. Steven Bray
For loans that closed after 1/20 of this year, FHA is ending its policy of charging a full month of interest when you pay off the loan. Here’s how this has worked in the past. With other loan programs, when a homeowner sells a home, the seller pays interest up until the date of closing. However, sellers with FHA loans had to pay interest through the end of the month of sale. Thus, if the sale closed at the beginning of the month, the seller could lose several hundred dollars, even though the FHA loan had been repaid in full. As a result, home sellers with FHA mortgages often scrambled to close their sales at month end to limit the amount of extra cost.
With the change, the FHA loan program falls in line with the rest of the industry and, more importantly, comes into compliance with recent government regulations.
It’s important to remember that the change applies only to new loans, those that closed after 1/20 of this year. For loans from previous years, the old rule still applies.