Prepayment and the HUD 223(a)(7) Refinance Program
Yes, HUD 223(a)(7) loans typically allow prepayment. However, there is often a 0-2 year lockout period, during which the loan cannot be prepaid at all, followed by an 8-10% declining prepayment penalty. This means that the prepayment penalty will decline by 1% each year, starting after the lockout period ends.
For instance, if a loan had a 1-year lockout period, followed by an 8% declining prepayment penalty, and a borrower wanted to pay off the loan after the first year, they would need to pay a penalty of 8% of the remaining loan. However, if they waited until after the fourth year, they would only need to pay 5% of the remaining loan amount. After the ninth year, there would be no penalty to prepay the loan.
To learn more about the HUD 223a7 refinance program, fill out the form below to speak to a HUD/FHA loan expert.