source:
  type: guide
  id: hud-4000-1-iii-k-prepayment
  authority: FHA Single Family Housing Policy Handbook 4000.1, Part III — k. Prepayment
    (04/29/2024)
  description: FHA Single Family Housing Policy Handbook 4000.1, Part III — k. Prepayment
    (04/29/2024).
  coverage_tier: operative
obligations:
- id: hud-4000-1-iii-k-prepayment-full
  canonical_id: hud-4000-1-iii-k-prepayment-full
  section: FHA Single Family Housing Policy Handbook 4000.1, Part III — k. Prepayment
    (04/29/2024)
  type: do
  tags:
  - regulator-direct
  - fha
  - hud-handbook
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: FHA Single Family Housing Policy Handbook 4000.1, Part III — k. Prepayment
      (04/29/2024)
    source_class: hud-handbook
    source_url: https://www.hud.gov/hud-partners/single-family-handbook-4000-1
    snapshot_id: 8c03836f77f317e1
    fetched_at: '2026-05-23T00:28:40Z'
    content_hash: sha256:411430f29b13f9b54a2ebb0e6f6e7087ecd2b90d0da22eb0c8c792eaa2d7d0df
    paragraph_quote: 'k. Prepayment (04/29/2024) i. Definition A Prepayment in Full,
      or Payoff, refers to the payment in whole of the principal amount of the HECM
      in advance of expiration of the term of the HECM. ii. Standard The Mortgagee
      must accept a prepayment of a HECM in whole or in part without penalty to the
      Borrower. iii. Prepayment Procedures If the Borrower prepays the HECM in full,
      the HECM is terminated. iv. Trustee Fees for Satisfaction The Mortgagee must
      operate in accordance with the security instrument when preparing the satisfaction.
      If the security instrument allows, the Mortgagee may charge the Borrower: •
      the amount of the trustee’s fee including any reasonable and customary fees;
      or • for the execution of a satisfaction, the release of trustee’s deed when
      the debt is paid in full. v. Recordation Fees for Satisfactions The Mortgagee
      may charge the Borrower for recordation fees incurred where the cost of recordation
      is not the responsibility of the Mortgagee in accordance with state, local,
      and tribal law. III. SERVICING AND LOSS MITIGATION B. Title II Insured Housing
      Programs Reverse Mortgages 1. Servicing of FHA-Insured HECMs Handbook 4000.1
      1459 Last Revised: 11/26/2025 vi. Application of Prepayments The Mortgagee must
      apply Borrower payments in accordance with the HECM Note and in the following
      order: • MIPs; • servicing fees; • interest; and • principal. vii. Application
      of Partial Prepayments (A) Definition A Partial Prepayment refers to a payment
      of part of the principal amount before the date on which the principal is due.
      (B) Standard The Mortgagee must allow the Borrower to make a Partial Prepayment
      at any time. The Mortgagee must apply Partial Prepayments in accordance with
      the mortgage Note and in the following order: • MIPs; • servicing fees; • interest;
      and • principal. The Mortgagee must not provide a Borrower with a fixed rate
      HECM with any additional funds, regardless of a Partial Prepayment. For Borrowers
      with an adjustable interest rate and for whom a Partial Prepayment results in
      additional Principal Limit to become available to the Borrower, the Mortgagee
      must allow the Borrower to determine how the additional Principal Limit is used.
      The Borrower may choose to: • increase monthly payments by reducing the outstanding
      balance and increasing the Net Principal Limit (NPL) available; • set up or
      increase a line of credit without altering existing monthly payments by reducing
      the outstanding balance and increasing the NPL; or • continue payments that
      have ceased or are nearing cessation. If the Borrower does not designate an
      account, the Mortgagee must apply any funds going toward the principal to: •
      an existing line of credit; or • create a new line of credit in accordance with
      the HECM loan agreement. Any change in subsequent payments to the Borrower must
      be made only at the Borrower’s request or to accommodate payment of expenses
      on the Borrower’s behalf. III. SERVICING AND LOSS MITIGATION B. Title II Insured
      Housing Programs Reverse Mortgages 1. Servicing of FHA-Insured HECMs Handbook
      4000.1 1460 Last Revised: 11/26/2025'
  judgment: false
