US FederalWhat is a high-cost mortgage and what extra protections do I have?
A high-cost mortgage is a loan with an APR or fees above federal thresholds, triggering extra protections like mandatory counseling, restrictions on prepayment penalties, and prohibitions on balloon payments and negative amortization.
What the Law Says
The Home Ownership and Equity Protection Act (HOEPA), part of the Truth in Lending Act, defines high-cost mortgages and imposes strict consumer protections to prevent abusive lending.
A mortgage is considered 'high-cost' under federal law if it meets any one of three tests: (1) its annual percentage rate (APR) exceeds the Average Prime Offer Rate (APOR) by more than 6.5 percentage points for first-lien loans (or 8.5 for subordinate liens); (2) total points and fees exceed the greater of 5% of the loan amount or a dollar threshold (e.g., $896 in 2024); or (3) it’s a closed-end loan with a prepayment penalty lasting longer than 36 months or exceeding 2% of the prepaid amount.
Once classified as high-cost, the loan triggers mandatory disclosures, a 3-day waiting period after counseling before closing, and bans on harmful features like balloon payments in loans with terms under 5 years, negative amortization, and most prepayment penalties.
Lenders must also provide a written notice stating the loan is high-cost and explain the borrower’s right to receive free homeownership counseling from a HUD-approved agency.
Statutory TextThe term 'high-cost mortgage' means a consumer credit transaction that is secured by the consumer's principal dwelling, if— (A) the annual percentage rate at consummation of the transaction will exceed by more than 6.5 percentage points the average prime offer rate for a comparable transaction...
— 15 U.S.C. § 1639 — Requirements for certain mortgages
Statutory TextThe total points and fees payable by the consumer at or before closing will exceed the greater of 5 percent of the total loan amount or $896...
— 15 U.S.C. § 1639 — Requirements for certain mortgages
Statutory TextNo high-cost mortgage may contain a provision that— (i) provides for a balloon payment; (ii) provides for negative amortization; (iii) provides for a prepayment penalty...
— 15 U.S.C. § 1639 — Requirements for certain mortgages
What to Do
Confirm whether your loan qualifies as high-cost using the APR and fee thresholds published annually by the CFPB.
Receive and review the mandatory 'high-cost mortgage' notice from your lender — it must be provided clearly and separately.
Schedule free counseling with a HUD-approved housing counselor at least 3 days before closing.
Review your loan documents carefully for banned terms like balloon payments, negative amortization, or long-term prepayment penalties.
If you spot violations, contact the CFPB (consumerfinance.gov/complaint) or consult a consumer attorney — you may have rights to rescind the loan or recover damages.
Sources
Not legal advice. This article is general information based on publicly available sources, written for educational purposes. Laws change and individual situations vary. Consult a licensed attorney in your jurisdiction before acting on anything you read here. Last reviewed: 2026-06-08.