13-20: PREPAYMENTS (09/94)

© HUD Single Family Housing Policy Handbook 4330.1 REV-5

The mortgagor may prepay the mortgage in full or in part without penalty.

1. Disclosure Statements. Mortgagees shall provide to mortgagors at closing, as well as annually, a written Disclosure Statement of the amount outstanding on the loan and describe the requirements that the mortgagor must fulfill upon prepayment of the mortgage to prevent accrual of any interest on the mortgage after the date of prepayment.
2. At closing Disclosure Statement. Depending upon the type of payment plan the mortgagor has selected, the mortgagee shall provide to the mortgagor one of the following Disclosure Statements:
3. Term or Tenure Payments. For Payment Plans requiring Term or Tenure Payments, the mortgagee shall provide the mortgagor with the Disclosure Statement contained in Appendix 8A.
4. Line of Credit Payments. Under the line of credit option, the mortgagee shall provide the mortgagor with the Disclosure Statement contained in Appendix 8.
5. Annual Disclosure Statement (24 CFR 206.203). The mortgagee shall provide to the mortgagor an annual statement regarding the activities of the mortgage for each calendar year. The statement shall be provided to the mortgagor no later than January 31 for each preceding year until the mortgage is paid in full by the mortgagor. The statement shall include the following:
6. summarize the total principal amount for the year which has been paid to the mortgagor under the mortgage;
7. the MIP paid to HUD and charged to the mortgagor;
8. the total amount of deferred interest added to the mortgage balance;
9. the total mortgage balance and the current principal limit;
10. if the mortgagor has elected to have the mortgagee pay property charges (taxes, ground rents, flood and hazard insurance premiums, and assessments) an accounting of all payments for property charges for the year.
11. Tenure or Term Option. When payments are being made under the term or tenure option, a mortgage may be prepaid at any time and the provisions of (24 CFR 203.558(a), (c), and (e))shall be followed in handling a prepayment except that the term installment due date shall mean the date of payments to the mortgagor instead of payments by the mortgagor.
12. Mortgagors may, without penalty, prepay the mortgage in full on the first of any month in the mortgage term without giving the mortgagee any notice (oral or written) of intent, regardless of what the mortgage security instrument states.
13. If the prepayment is offered on other than an installment due date, the mortgagee has the option of:
14. refusing to accept the prepayment until the next installment due date (i.e., the first of the next month); or
15. requiring the payment of interest to the next installment due date but only if the mortgagee so advises the mortgagor in a form approved by HUD (see Appendix 8(C)for an acceptable sample) in response to the mortgagor's (or his/her agent's) inquiry or request for payoff amount from the mortgagor.
16. Any mortgagee that fails to meet the disclosure requirements stated in Paragraph 5-2C must forfeit the interest collected after the date the prepayment is received.
17. Line of Credit Option. When payments are being made under the line of credit option, a mortgage may be prepaid after giving two weeks notice to the mortgagee. If the mortgagee accepts the prepayment without two weeks notice, interest may be charged on the prepaid amount for a two week period after the date of notice. Otherwise, no interest shall be charged on the prepaid amount after the date of prepayment.
18. The Mortgagor Prepays the Mortgage in Full. If the mortgagor prepays the mortgage in full, the mortgage is terminated.