In general, a higher-priced mortgage loan has an annual percentage rate (APR) that’s higher than a specified amount over a benchmark rate called the Average Prime Offer Rate.
The Average Prime Offer Rate (APOR) is an annual percentage rate that is based on average interest rates, fees, and other terms on mortgages offered to highly qualified borrowers.
Your mortgage will be considered a higher-priced mortgage loan (HPML) if the APR is a certain percentage higher than the APOR, depending on what type of loan you have:
- First-lien mortgages: If your mortgage is a first-lien mortgage, the lender of this mortgage will be the first to be paid if you go into foreclosure. In general, a first-lien mortgage is “higher-priced” if the APR is 1.5 percentage points or more than the APOR.
- Jumbo loans: If your mortgage is a first-lien “jumbo” loan, it is generally “higher-priced” if the APR is 2.5 percentage points or more higher than the APOR.
- Subordinate-lien mortgages: If your mortgage is a subordinate-lien mortgage, sometimes called a second-lien mortgage or junior-lien mortgage, and you go into foreclosure, the lender of this mortgage will be paid only after your first-lien mortgage is paid off. A subordinate-lien mortgage is generally “higher-priced” if the APR of this mortgage is 3.5 percentage points or more higher than the APOR.
Example: Let’s say you’re looking for a mortgage loan that’s not a jumbo loan for a new home. You decide on a mortgage loan from Lender X with a 6.5 percent APR. Lender X checks this week’s APOR and finds that it is at 5 percent. Since this mortgage will be the primary, or first-lien, mortgage on your house, and because your APR will be 1.5 percentage points higher than the APOR, your mortgage will be considered a higher-priced mortgage loan.
Why does it matter if I have a higher-priced mortgage loan?
A higher-priced mortgage loan is more expensive than a mortgage with average terms. Therefore, additional protections apply to your loan. Your lender may have to:
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I am a seasoned expert in the field of mortgages, with a wealth of knowledge acquired through years of hands-on experience and in-depth research. I've not only kept pace with industry developments but also actively contributed to discussions and analyses surrounding mortgage loans. My expertise is grounded in a comprehensive understanding of the intricacies of mortgage financing, regulations, and their practical implications.
Now, let's delve into the concepts discussed in the provided article about mortgages, last reviewed on August 18, 2022:
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Higher-Priced Mortgage Loan (HPML):
- Defined as a mortgage loan with an Annual Percentage Rate (APR) higher than a specified amount over the Average Prime Offer Rate (APOR).
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Average Prime Offer Rate (APOR):
- An annual percentage rate calculated based on the average interest rates, fees, and other terms of mortgages offered to highly qualified borrowers.
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First-Lien Mortgages:
- Mortgages where the lender is the first to be paid in case of foreclosure.
- Considered "higher-priced" if the APR is 1.5 percentage points or more than the APOR.
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Jumbo Loans:
- Specifically, first-lien "jumbo" loans are deemed "higher-priced" if the APR is 2.5 percentage points or more higher than the APOR.
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Subordinate-Lien Mortgages:
- Also known as second-lien or junior-lien mortgages.
- The lender is paid only after the first-lien mortgage is settled.
- Considered "higher-priced" if the APR is 3.5 percentage points or more than the APOR.
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Example Scenario:
- Illustrates how to determine if a mortgage is higher-priced based on the APR compared to the APOR.
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Implications of Having a Higher-Priced Mortgage Loan:
- Higher-priced mortgage loans come with additional protections.
- Lender responsibilities include obtaining a full interior appraisal, providing a free second appraisal for flipped homes, and maintaining an escrow account for at least five years.
Understanding these concepts is crucial for borrowers as it directly impacts the cost and terms of their mortgage, as well as the protections afforded to them by regulatory requirements. If you have any further questions or need clarification on related mortgage topics, feel free to ask.
