Last reviewed: 16 September 2026

Home › The Library › HOEPA's high-cost mortgage triggers

HOEPA and the high-cost mortgage triggers, explained

Our non-QM explainer covers the ability-to-repay question. This is a separate, older federal question — whether a loan's cost and terms are steep enough to trigger the Home Ownership and Equity Protection Act's (HOEPA) own protections, regardless of its QM status.

Three independent tests — any one is enough

HOEPA, enacted in 1994 and folded into Regulation Z at 12 CFR §§ 1026.32–.34 by Dodd-Frank, classifies a closed-end mortgage as a "high-cost mortgage" if it crosses any one of three separate thresholds:

• The APR test. The loan's APR exceeds the applicable Average Prime Offer Rate by more than 6.5 percentage points for most first-lien transactions, or by more than 8.5 percentage points for a first lien secured by personal property under $50,000 — relevant to some manufactured-home financing covered in our chattel loan explainer — or for a subordinate-lien transaction of any size.
• The points-and-fees test. For 2026, a loan with a total loan amount of $27,592 or more is high-cost if points and fees exceed 5 percent of that amount; a loan below $27,592 is high-cost if points and fees exceed the lesser of 8 percent of the total loan amount or $1,380. Both dollar figures are indexed to inflation and adjusted by the CFPB every January 1 — verify the current year's figures directly rather than assuming these carry forward unchanged.
• The prepayment penalty test. The loan permits a prepayment penalty more than 36 months after consummation, or one that could ever exceed 2 percent of the amount prepaid.

What changes once a loan crosses the line

Section 1026.34 attaches real, specific restrictions to any loan that trips one of the three tests above: balloon payments are banned outright (with narrow exceptions), negative amortization is banned entirely, late fees are capped at 4 percent of the past-due payment with no pyramiding of multiple late charges, and no fee can be charged just to modify, renew, extend, or defer payment on the loan. Notably, a high-cost mortgage bans all prepayment penalties outright — including a penalty that, on its own, wouldn't have been large enough to trip the prepayment-penalty test above; once any of the three tests classifies a loan as high-cost, every one of these restrictions applies regardless of which specific test triggered it. A high-cost mortgage also requires the borrower to receive mandatory homeownership counseling from a HUD-approved counselor before consummation — a separate, parallel counseling mandate to the one our HECM counseling explainer covers for reverse mortgages, applying here to high-cost forward mortgages instead.

A separate question from QM status

HOEPA coverage turns on a loan's cost and specific terms, not on whether it meets the Ability-to-Repay/Qualified Mortgage standard our non-QM explainer covers — the two are independently checkable questions about the same loan. A loan can be Non-QM without being high-cost, or high-cost without being Non-QM; an originator doing non-QM business specifically is worth checking against both standards separately, not just one.

How to actually check the math

The current year's exact dollar thresholds are published in the CFPB's annual Regulation Z threshold-adjustment notice in the Federal Register each December, effective the following January 1 — the same public, dated source a borrower, researcher, or originator should check directly rather than relying on a figure repeated from an older year.