How do you determine if a loan exceeds the higher-priced mortgage limits?

To determine if a loan exceeds the higher-priced mortgage limits, the correct approach is to add the Average Prime Offer Rate (APOR) index to 1.5% on the first mortgage. This method aligns with the guidelines for higher-priced mortgage loans as outlined in the Truth in Lending Act. When assessing whether a loan qualifies as a higher-priced mortgage loan, the calculation takes the current APOR and applies the additional percentage to establish a threshold. If the interest rate of the mortgage exceeds this threshold, the loan is deemed higher-priced.

In this context, using 1.5% is significant because it represents a benchmark for conventional loans. By adding this figure to the APOR, lenders can accurately gauge whether the loan's terms are more expensive than what is typically available in the market for a comparable loan. This is crucial for compliance purposes and helps to protect consumers from potentially predatory lending practices associated with higher rates.

Therefore, adding the APOR index to 1.5% gives a clear metric for comparison, hence establishing why this method is the correct choice for determining if the loan exceeds the higher-priced mortgage limits.