The benefits of an FHA home loan for many borrowers far outweighs the FHA payoff rule, but it’s more about the principle than the money for many people.
If you have an FHA home loan, and you pay it off before maturity, at closing you’re expected to pay for a full month’s interest, no matter what day of the month you actually settled. So, even if you closed on the first day of the month, you still have to pay interest for the entire month.
As a result, the timing of paying off an FHA mortgage (often as a result of selling a home) has been important to avoid payment of additional interest. The problem is that buyers typically schedule the closing on a home, making it difficult for sellers to time the closing to avoid excess interest charges.
FHA Committed to End the Full-Month Interest Payoff Policy by January 21, 2015
The FHA has committed to change its full-month interest payoff policy by January 21, 2015, as a result of a regulatory mandate from the Consumer Financial Protection Bureau.
Learn more in an article by the Los Angeles Times: Controversial FHA payoff rule to end.