Higher-Priced Mortgage Loan (HPML)

A higher-priced mortgage loan, or HPML, is a closed-end consumer mortgage secured by the borrower’s principal dwelling whose Annual Percentage Rate (APR) exceeds the Average Prime Offer Rate for a comparable transaction by a specified margin.

Why It Matters

HPML is a regulatory classification, not a lender’s description of whether a rate feels expensive. The lender compares the loan’s APR with the Average Prime Offer Rate (APOR) in effect for a comparable transaction when the interest rate is set.

The standard margins are generally:

Because APR includes certain finance charges as well as interest, points and fees can affect HPML status even when two loans have similar note rates.

Where It Appears in the Borrower Process

The lender tests HPML status when pricing is set and compliance requirements are identified. Depending on the transaction and applicable exemptions, the classification can affect:

• whether a first-lien loan needs an escrow account for property taxes and required insurance
• whether a written appraisal with an interior property visit is required
• whether a recently resold home requires a second appraisal at no cost to the borrower
• when the borrower receives copies of required appraisals

Not every HPML receives every protection. Qualified mortgages and other transactions may be exempt from particular appraisal rules, and some creditors or properties can qualify for escrow exceptions. The classification starts the analysis; it does not answer every requirement by itself.

How the APOR Comparison Works

The comparison uses the APOR for a comparable transaction as of the date the loan’s rate is set. It is not a comparison with today’s average rate at closing or a borrower’s previous quote.

Practical Example

A borrower chooses a standard first-lien mortgage with a 7.00% APR. The relevant APOR when the rate is set is 5.40%. The spread is 1.60 percentage points.

Because the spread is at least 1.5 percentage points, the loan generally meets the HPML pricing test for a non-jumbo first lien. The lender then evaluates the escrow and appraisal rules, including any transaction-specific exemption.

Borrower Questions to Ask

If a lender identifies the mortgage as higher-priced, useful questions include:

1. Which APOR and rate-set date were used?
2. Which lien-position threshold applies?
3. Is the loan also a Qualified Mortgage (QM)?
4. Will an escrow account be required, and for how long?
5. Does the transaction require one or two appraisals?

HPML status does not mean the loan is prohibited. It means specified safeguards may apply because pricing crosses the regulatory benchmark.

How It Differs From Nearby Terms

An HPML differs from Annual Percentage Rate (APR) because APR is the measurement used in the comparison. HPML is the classification produced when that measurement exceeds APOR by the applicable margin.

It differs from a High-Cost Mortgage because HOEPA high-cost coverage uses higher APR triggers plus separate points-and-fees and prepayment-penalty tests. The labels sound similar but produce different protections.

It differs from a Jumbo Loan because jumbo describes loan size relative to the conforming limit. A jumbo loan is not automatically higher-priced, although a different HPML spread applies to first-lien jumbo mortgages.

Related Terms

• Annual Percentage Rate (APR)
• Interest Rate
• Ability to Repay
• Appraisal
• Qualified Mortgage (QM)
• Average Prime Offer Rate (APOR)
• High-Cost Mortgage
• Jumbo Loan

Knowledge Check

1. Why can a borrower have a loan with a familiar note rate but still hear about HPML status? HPML status compares APR, which includes certain finance charges, with APOR rather than looking only at the note rate.
2. What is the general first-lien, non-jumbo HPML threshold? An APR at least 1.5 percentage points above the applicable APOR.
3. Does every HPML require the same appraisal and escrow steps? No. The classification triggers further analysis, but exemptions can apply to particular requirements.