How are mortgage payments applied if a Mortgagee uses a special custodial account?

Mortgagees using special custodial accounts must withdraw an amount equal to the principal, interest, and service charges within 30 Days after deposit and post to the Borrower’s records accordingly.
The Mortgagee must apply Borrower payments in the following order:

  • to mortgage insurance premiums (MIP) due, if any;
  • to charges for ground rents, taxes, special assessments, including any assessments related to a Property Assessed Clean Energy (PACE) obligation, flood insurance premiums, if required, and fire and other hazard insurance premiums;
  • to interest on the Mortgage;
  • to amortization of the principal of the Mortgage; and
  • to Late Charges, provided, that any amounts owed for Late Charges must be handled consistent with Truth-in-Lending Act (TILA) regulations.

The Mortgagee may only apply funds for payments of optional insurance coverage premiums after the application of funds to all other elements of the monthly Mortgage Payment.
For policy information see:

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

Topic Number: KA-05215