13-21: PARTIAL PREPAYMENTS (09/94)

Owned by Kacey Olson
Nov 25, 2018
2 min read

© HUD Single Family Housing Policy Handbook 4330.1 REV-5

The mortgagor may choose to make a partial prepayment because his or her financial circumstances have improved and he or she wishes to preserve more of the equity in the property. Any change in subsequent payments to the mortgagor should be made only at the mortgagor's request.

  1. Increase Monthly Payments. The mortgagor may choose to use a partial prepayment to increase monthly payments. By reducing the outstanding balance, the mortgagor increases the net principal limit available for calculating monthly payments.
  2. Establish or Increase a Line of Credit. A mortgagor may choose to make a partial prepayment to set up or to increase a line of credit without altering existing monthly payments. By reducing the outstanding balance, the mortgagor increases the net principal limit. All or part of the increase in the net principal limit may be set aside for a line of credit.
  3. Refinance the Mortgage. A mortgagor may choose to repay the entire outstanding balance in order to refinance the mortgage with a new reverse mortgage. If the new mortgage is an FHA reverse mortgage, the mortgagor will have to pay a new initial MIP and meet other eligibility criteria.
  4. Application of Partial Prepayment. Partial prepayments are to be applied first to the payment of the mortgage insurance premium balance, then to the servicing fee balance, interest balance and, finally, to principal. After those items have been satisfied, a borrower receiving monthly payments in combination with a line of credit may specify to which account a partial prepayment is to be applied.
  5. Mortgagee may apply partial prepayment to an existing line of credit. If the mortgagor does not designate an account, the mortgagee may apply any partial prepayment to an existing line of credit.
  6. Mortgagee may create an existing line of credit. The mortgagee may also create a new line of credit in accordance with the Home Equity Conversion Loan Agreement, contained in Appendix 68, Paragraph 2.7.4.