How is a partial prepayment to be applied to an FHA performing mortgage?

A Partial Prepayment is a payment of part of the principal amount before the date on which the principal is due.
An Advance Full Monthly Payment is the payment of an amount larger than the full monthly payment, equaling an additional full monthly payment.
 
The Mortgagee must apply Partial Prepayments as requested by the Borrower as either:
  • advance full monthly payments; or
  • additional payments toward reducing principal and future monthly payments.
In the event that the Borrower does not specify how the Partial Prepayment should be applied, the Mortgagee should communicate with the Borrower to determine the method of application or apply the payment in a manner previously communicated to the Borrower.  If the Borrower elects to have Partial Prepayments equal to a full monthly payment applied as an advance full monthly payment, the Mortgagee must allow the Borrower to skip an equal number of installments in the future without creating a mortgage Default or incurring a Late Charge.
 
When the Installment Due Date falls on a non-business day, the Mortgagee must consider a Borrower’s Notice of Intent to Prepay or the receipt of the prepayment amount for a Mortgage closed before January 21, 2015, timely if received on the next business day.

Additional questions may be directed to the HUD National Servicing Center at (877) 622-8525.
 
For policy information see Handbook 4000.1 III.A.1.e.iv. at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh

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-05218