A high-cost mortgage under HOEPA has an initial interest rate of 7.5% with a provision allowing increases up to 9.5% during the first five years. What is the maximum allowable rate increase after the five-year period?
Correct Answer
C) 2 percentage points above the rate at year 5
HOEPA restricts rate increases on high-cost mortgages to 2 percentage points in the first 5 years, then 6 percentage points over the life of the loan. After year 5, the rate can increase an additional 2 percentage points above whatever rate exists at the end of year 5.
Why This Is the Correct Answer
HOEPA restricts rate increases on high-cost mortgages to 2 percentage points in the first 5 years, then 6 percentage points over the life of the loan. After year 5, the rate can increase an additional 2 percentage points above whatever rate exists at the end of year 5.
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