Mortgage Loan Originator (MLO) Licensing Practice Test 2025 - Free MLO Practice Questions and Study Guide

A high-cost loan is typically classified under specific regulations aimed at protecting borrowers, such as those outlined by the Home Ownership and Equity Protection Act (HOEPA). These laws are designed to target loans with higher interest rates and fees, which may present significant risks for borrowers. One of the key provisions surrounding high-cost loans is that they do not allow for a right of rescission, meaning that once the loan is executed, a borrower cannot cancel the loan agreement after the fact.

In contrast, the other loan types—fixed-rate mortgages, conventional mortgages, and adjustable-rate mortgages—generally allow borrowers to have the right to rescind the loan within a specified period (usually three business days) after signing the loan documents, depending on certain conditions. Therefore, high-cost loans are distinct in that they lack this rescission right, which is a critical element for potential borrowers to understand when considering their financing options.