Hundreds of thousands of home sellers have had their pockets picked at closings during the past decade: They’ve been charged interest on their mortgages after their principal debts had been fully paid off.
But thanks to a policy switch made final last week, charging extra interest payments on loans insured by the Federal Housing Administration will soon be banned. FHA, which traditionally has served as a major source of financing for moderate-income first-time buyers, many of them African American and Latino, for years has allowed lenders to charge borrowers a full month of interest when they sell or refinance a home. This has been the case even when borrowers pay off the mortgage weeks in advance of the end of the month.
Say you went to closing on an FHA loan Sept. 3. Under standard industry rules followed by Fannie Mae, Freddie Mac and the Department of Veterans Affairs, your interest charges cannot extend beyond that date. But under FHA’s long-standing policy, lenders have been allowed to hit you with interest charges through Sept. 30.
Here are the details of the policy reform: Starting Jan. 21, 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. Under the revised policy, if you’re selling your home and you have a $150,000 balance left on your FHA loan, the lender will have to stop charging you interest on the date of the closing, not compute the interest charges that would be due through the end of the month and roll them into your bottom line.
Disclaimer: for interest and entertainment purposes only.
