What criteria must a loan meet to be classified as a "high-cost mortgage"?

A loan is designated as a "high-cost mortgage" based on specific criteria that pertain to its terms, particularly in relation to thresholds for fees and the annual percentage rate (APR). This classification is intended to protect borrowers from potentially predatory lending practices that arise when the lending costs are significantly higher than conventional mortgage loans.

The criteria typically includes factors such as the APR exceeding a certain percentage above the average prime offer rate or the total points and fees exceeding specified limits relative to the overall loan amount. This regulatory framework aims to provide enhanced disclosures and borrower protections for loans that could create financial hardship due to their elevated costs.

In contrast, the other options do not accurately describe the defining characteristics of high-cost mortgages. For instance, simply having a loan amount over $500,000 or a borrower having a credit score below 600 does not automatically classify a loan as high-cost. Similarly, a loan secured by a second home does not inherently meet the criteria for high-cost mortgage classification unless it also meets the specified thresholds related to fees and interest rates. Hence, the focus on APR and fees is crucial for determining the high-cost status of a mortgage.