A closed-end loan of $18,000 secured by a principal dwelling carries $1,180 in points and fees. The APR runs 3 points over the average prime offer rate and there is no prepayment penalty.
Correct Answer
B) High-cost: under $20,000 the test is the lesser of 8% or a flat $1,000
Below a $20,000 loan amount the points-and-fees test is the lesser of 8% of the loan or $1,000. Eight per cent of $18,000 is $1,440, so the lesser figure is $1,000, and $1,180 is over it. The loan is high-cost. Other choices: reading 6.6% against 8% alone skips the dollar half of the test, which is the half that binds on small loans; an APR only 3 points over APOR leaves the other two tests live; and no loan is treated as high-cost by definition merely for being small. Source: 12 CFR 1026.32(a)(1)(ii)(B)
Why This Is the Correct Answer
Below a $20,000 loan amount the points-and-fees test is the lesser of 8% of the loan or $1,000. Eight per cent of $18,000 is $1,440, so the lesser figure is $1,000, and $1,180 is over it. The loan is high-cost. Other choices: reading 6.6% against 8% alone skips the dollar half of the test, which is the half that binds on small loans; an APR only 3 points over APOR leaves the other two tests live; and no loan is treated as high-cost by definition merely for being small. Source: 12 CFR 1026.32(a)(1)(ii)(B)
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