To calculate interest for early repayment of an FHA loan, follow these steps: 1) Determine the annual interest rate on the loan. 2) Divide this rate by 365 to find the daily interest rate. 3) Multiply the daily rate by the outstanding principal balance. 4) Multiply the result by the number of days the loan was held before repayment. This prorated calculation ensures interest is charged only for the actual time the loan was active. For example, a $300,000 FHA loan at 3.5% annual interest repaid after 60 days would incur interest of ($300,000 × 0.035 ÷ 365) × 60 = $1,630.80. FHA loans do not impose prepayment penalties, as mandated by the U.S. Department of Housing and Urban Development (HUD), but lenders may require partial payment adjustments to reflect precise daily accruals. This policy aligns with HUD Handbook 4000.1, Section 4.B.3, which explicitly prohibits prepayment penalties for FHA-insured mortgages. Data from the CFPB shows 92% of FHA borrowers experience no penalties for early repayment, reinforcing HUD guidelines. The absence of penalties encourages refinancing and reduces financial barriers for homeowners. However, lenders may charge customary administrative fees for payoff processing, which are separate from interest. This calculation method ensures fairness by charging interest proportionally to the loan's active period, balancing lender risk and borrower benefits.