Which loan feature is permissible for a high-cost home loan?

A high-cost home loan can feature an adjustable interest rate. This type of loan often includes terms that allow for adjustments based on market conditions after an initial fixed period or depending on specific indexes, making it crucial to understand the implications of such adjustments for both the lender and borrower.

The presence of an adjustable interest rate in a high-cost home loan can offer flexibility in monthly payments, especially if interest rates fluctuate. However, it is important for borrowers to grasp that this feature may lead to increased payments over time if market rates rise.

On the other hand, prepayment penalties are often prohibited in high-cost loans to protect borrowers. Fixed interest rates are generally permissible, but their inclusion does not characterize the essence of high-cost home loans, which often have adjustable terms for adaptability. Negative amortization is typically not allowed in these loans, as it can lead to unfavorable scenarios for borrowers, increasing the principal balance instead of reducing it.