The National Association of Realtors® (NAR) is working to get U.S. Department of Housing and Urban Development to eliminate post-closing interest charges imposed on borrowers who pay off loans insured by the Federal Housing Administration. In May of this year, the FHA Commission suggested that the cost to the agency of this change would get passed on to the borrowers in the form of higher interest rates. However, NAR President, Steve Brown "pointed out that conventional loans, Veterans Affairs loans and U.S. Department of Agriculture Rural Housing Service loans do not charge post-payment interest. VA and RHS loans, which are securitized by Ginnie Mae, nonetheless offer interest rates similar to current FHA rates." The cost to sellers can be significant.
Consider the following calculation:
- Sellers have been in their home about 5 years
- Remaining principal balance equals $182,474
- Interest on the FHA Loan is 6%
- Closing at first of the month leave 29 days of the month remaining
- Total amount of interest = $853.51!
Yes, it’s a big deal!