Can I Pay Off an FHA Loan Early?

Consumers are now allowed to pay off an FHA loan early with no prepayment penalties, but some lenders may still hit borrowers with additional interest charges.

What is an FHA loan?

Federal Housing Administration (FHA) loans
offer low to moderate income borrowers the chance to secure a mortgage. The loans, which are offered through approved lenders, have more manageable credit score requirements and down payments than conventional mortgage loans, making them an attractive option.

According to Investopedia, consumers can qualify for an FHA loan and borrow up to 96.5 percent of their home value if they have a credit score of above 580. This means that borrowers only need to make a 3.5 percent down payment on their home. If borrowers have a credit score between 500 and 579, they may be able to qualify for an FHA loan if they make a 10 percent down payment.

FHA loans do require borrowers to pay FHA mortgage insurance, which protects lenders from loss in the case of a consumer defaulting on their loan.

Due to the flexibility of FHA loan terms, many first time home buyers use FHA loans. FHA loans come in fixed-rate terms of 15 and 30 years.

Can I pay off an FHA loan early?

Under FHA rules, FHA loans do not carry unnecessary fees, including prepayment penalties. This means that borrowers can refinance or pay off an FHA loan without having to pay penalties. However, some borrowers may still be charged post-payment interest on the loan. Each year, FHA loans brought in millions of dollars through their common (and highly controversial) post-payment interest practice.

Borrowers who closed on their FHA loan before Jan. 21, 2015 may have been charged post-payment interest, regardless of the day that they paid off their loan.

For example, if someone has a monthly mortgage payment due on the fifth of the month but make their payment on the first, they are still liable for payment through the fifth. This also reportedly applies even when borrowers pay off their complete balance before their due date.

These interest charges, called post-payment interest, are not technically prepayment penalties. However, some consumers argue that these charges function in the same way.

Are post-payment fees still allowed?

Due to consumer complaints, FHA revised the terms of their loans to eliminate these charges for loans closed after Jan. 21, 2015 due to a new rule from the Consumer Financial Protection Bureau (CFPB). Under the terms of this new rule, mortgagees can only charge interest through the date the mortgage is paid. The charging of any interest beyond that point—that is, these controversial post-payment interest fees—is prohibited.

During the period in which public comments were accepted about the proposed rule, most commenters were supportive of the proposal to prohibit the charging of post-payment interest fees on FHA loans.

Though there were many complaints about post-payment interest fees, it still took quite some time for this new rule to go through the Housing and Urban Development Department (HUD), the CFPB, and the FHA. Indeed, the rule was first proposed by HUD on March 13, 2014, announced on August 26, 2014, and went into effect on January 21, 2015.

However, some banks may still be charging their customers these kinds of post-payment interest fees on the FHA loans after they’ve paid them off, in violation of the new CFPB rule.

What if I am charged post-payment interest despite FHA rules?

Lawyers are investigating claims that banks such as Regions Bank may wrongfully charge post-payment interest on FHA loans despite FHA rules.

There are around 1,500 locations of Regions Bank across 16 states including Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee and Texas. Regions Bank loan options offer a variety of affordable home loans, including FHA fixed rate loans, which they claim offer “a low down payment and fixed monthly payments, and are popular with first-time home buyers who may not qualify for other loan programs.”

Consumers have already taken legal action against other banks which allegedly charged them post-payment interest, but lawyers are investigating Regions to see if the bank has violated current FHA rules by charging post-payment interest on newer loans.

If you had an FHA loan through Regions Bank that you sold, refinanced, or paid off within the last four years and were charged post-payment interest fees, you may qualify to take legal action. The litigation process can be daunting, so Top Class Actions has laid the groundwork by connecting you with an experienced attorney. Speaking with a qualified attorney can help you evaluate your eligibility, navigate the complexities of litigation, and maximize your compensation.

Join a Regions Bank FHA Mortgage Class Action Lawsuit Investigation

If you had an FHA mortgage loan with Regions Bank, and you sold, refinanced or paid off your mortgage early, you may have been charged a post-payment interest fee. If so, you may be owed money.

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This article is not legal advice. It is presented
for informational purposes only.