HOEPA loan category triggered by specified APR, points-and-fees, or prepayment-penalty tests.
A high-cost mortgage is a consumer mortgage secured by the borrower’s principal dwelling that crosses one of the coverage tests under the Home Ownership and Equity Protection Act, or HOEPA.
High-cost is a defined legal category, not a general opinion that the payment or rate is expensive. A covered loan receives added disclosures and counseling requirements, and certain loan terms and practices are restricted or prohibited.
Coverage can be triggered in three different ways:
| Coverage test | What is measured |
|---|---|
| APR test | How far the loan’s APR exceeds APOR for a comparable transaction |
| Points-and-fees test | Whether covered upfront charges exceed the applicable percentage or annually adjusted dollar threshold |
| Prepayment-penalty test | Whether the timing or amount of a permitted penalty crosses the HOEPA trigger |
A lender must test all applicable paths. A loan can be high-cost because of points and fees even if it does not cross the APR threshold.
High-cost coverage is evaluated during product selection and pricing, before the borrower becomes obligated. Covered transactions can include closed-end mortgages and open-end home-equity plans secured by a principal dwelling, subject to exclusions for certain transactions.
When the category applies, borrower-facing protections generally include:
Exceptions and detailed calculations matter. The borrower-facing question is not simply “Are my fees high?” but “Which HOEPA test was applied, and what protections follow?”
Both HPML and high-cost mortgage tests compare APR with APOR, but the threshold and consequences differ. The high-cost APR margins are generally higher, and high-cost coverage also has separate points-and-fees and prepayment-penalty triggers.
Most closed-end high-cost mortgages may also meet the broader HPML test, but an HPML does not automatically meet the high-cost tests.
A homeowner considers a home-equity loan with a moderate note rate but unusually large origination and broker charges. The APR spread remains below the HOEPA APR trigger, but the lender’s points-and-fees calculation exceeds the applicable threshold.
The loan is therefore treated as a high-cost mortgage based on the points-and-fees test. The lender must provide the special disclosure, obtain the required counseling certification, and ensure the loan terms comply with high-cost mortgage restrictions.
A borrower considering a covered loan should separate:
The Loan Estimate or Closing Disclosure alone does not replace the special HOEPA process.
High-cost mortgage differs from HOEPA because HOEPA is the statutory protection framework. High-cost mortgage is the transaction classification produced by its coverage tests.
It differs from Higher-Priced Mortgage Loan (HPML) because HPML is a different regulatory category. A borrower should not treat the two labels as interchangeable.
It differs from Qualified Mortgage (QM) because QM is an ability-to-repay category. High-cost status is based on HOEPA coverage tests; one label does not substitute for the other.