Under HOEPA, which prepayment penalty would trigger high-cost status?

Under HOEPA, which prepayment penalty would trigger high-cost status?

• A. Penalty longer than 1 year
• B. Penalty longer than 2 years
• C. Penalty longer than 3 years or more than 3% of loan amount
• D. Any prepayment penalty at all

Answer: (C)

Under HOEPA, the high-cost status is triggered by prepayment terms that are especially punitive. Specifically, a prepayment penalty pushes a loan into high-cost status if it lasts longer than three years or if the penalty would exceed 3% of the loan amount. These thresholds are designed to prevent borrowers from being trapped by onerous costs if they pay off or refinance early. Penalties shorter than three years or at or below 3% of the loan amount do not by themselves make the loan high-cost, though other HOEPA triggers (like high APR or excessive points and fees) could still apply.

Under HOEPA, the high-cost status is triggered by prepayment terms that are especially punitive. Specifically, a prepayment penalty pushes a loan into high-cost status if it lasts longer than three years or if the penalty would exceed 3% of the loan amount. These thresholds are designed to prevent borrowers from being trapped by onerous costs if they pay off or refinance early. Penalties shorter than three years or at or below 3% of the loan amount do not by themselves make the loan high-cost, though other HOEPA triggers (like high APR or excessive points and fees) could still apply.