Regulatory calculation used to determine whether specified mortgage charges exceed QM or high-cost loan thresholds.
The mortgage points and fees test is a regulatory calculation used to determine whether specified charges exceed a threshold for Qualified Mortgage or high-cost mortgage treatment.
The test is not a simple total of every dollar shown under closing costs. Regulation Z defines which charges are included, which are excluded, and how compensation or affiliated-provider charges are treated.
Points and fees can determine whether a loan qualifies as a Qualified Mortgage (QM) and whether it crosses one of the High-Cost Mortgage triggers under HOEPA.
Crossing a threshold can change the loan’s regulatory classification, creditor protections, disclosure duties, restrictions, and counseling requirements. Lenders therefore run the test before closing and may restructure charges when a covered loan approaches a limit.
The result does not tell the borrower the full cost of the loan. A charge can affect cash to close or APR even if it is excluded from a particular points-and-fees calculation.
Borrowers usually encounter the test indirectly during pricing and compliance review:
The calculation may be rerun when pricing, compensation, loan amount, or closing charges change.
| Charge category | General treatment question |
|---|---|
| Creditor and originator charges | Is the charge retained by the creditor, originator, or an affiliate? |
| Mortgage broker compensation | Is compensation included under the applicable rule without double-counting? |
| Discount points | Does an exclusion apply based on the rate and number of bona fide points? |
| Real-estate-related fees | Is the charge bona fide, reasonable, and paid to an unaffiliated provider? |
| Credit insurance or debt cancellation | Is a premium or charge included by the regulatory definition? |
| Prepayment penalties | Must the applicable maximum or payoff charge be counted? |
Classification can depend on facts not visible from the fee label alone. Two charges called “processing fee” may receive different treatment depending on who receives them and what service they represent.
For many larger QM loans, the familiar cap is 3% of the total loan amount. Smaller loans use separate percentage or dollar tiers, and the dollar breakpoints adjust periodically.
The HOEPA points-and-fees trigger is a different coverage test with its own thresholds and annual adjustments. A loan can pass the QM cap without avoiding every other high-cost or higher-priced classification.
Borrowers should therefore avoid using one percentage as a universal rule. The test must identify its purpose, covered loan amount, lien and product facts, and current threshold.
Assume a $300,000 mortgage has $7,200 in charges that count as points and fees after the lender applies the regulatory inclusions and exclusions. The calculated ratio is 2.4% of the total loan amount.
If the applicable QM limit for that transaction is 3%, the loan is below that particular cap. This does not mean all closing costs equal $7,200, that the loan is automatically a QM, or that it avoids the separate APR and HOEPA coverage tests.
The points and fees test differs from Closing Costs because closing costs include the full set of transaction charges. The regulatory test counts only charges included by its definition.
It differs from the Finance Charge because finance charge is used in credit-cost disclosure and APR calculations. The two definitions overlap but are not identical.
It differs from Annual Percentage Rate (APR) because APR is an annualized cost measure. Points and fees is a separate amount compared with a regulatory cap or trigger.
It also differs from Discount Points because discount points are one charge category. Some bona fide points may receive specified exclusions, while others may count.