For years, if an FHA mortgage was paid off before maturity, at closing the borrower would be expected to pay up a full month's interest. Even if a borrower closed on April 2, for instance, he or she would be charged interest by the servicer through April 30. Fannie Mae, Freddie Mac, and the Department of Veterans Affairs, by contrast, all require interest to be collected only to the day of principal payoff.
Changes, though, are looming. Due to a regulatory mandate from the Consumer Financial Protection Bureau, the FHA has agreed to end its controversial full-month interest policy. The FHA has until Jan. 21 to make the switch, which will apply to future borrowers only.
Presumably, some of the estimated 7.8 million existing FHA mortgage borrowers who are not covered by the forthcoming policy change will continue to be vulnerable to paying more than they should. Columnist Kenneth R. Harney advises, "The only way around it: If you are a seller or refinancer paying off an FHA loan, insist that your closing is at the end of the month, not the beginning."