Final answer:
A high-cost home loan is identified when the APR exceeds the APOR by more than 8.5 percentage points for a second lien. This is particularly applicable to adjustable-rate mortgages (ARMs), where the interest rate adjusts with market rates.
Step-by-step explanation:
The question revolves around the definition of a high-cost home loan in relation to the annual percentage rate (APR) compared to the average prime offer rate (APOR). A loan is considered high-cost if the loan's APR exceeds the APOR for a comparable transaction by more than certain thresholds. In the case of the high-cost home loan threshold described in the question, a loan is a high-cost home loan if the loan's APR exceeds the APOR by more than 8.5 percentage points for a second lien transaction.
This information is especially relevant to adjustable-rate mortgages (ARMs), which often start with lower introductory interest rates that can adjust over time, potentially leading to higher costs. With adjustable-rate mortgages, the interest rate varies with the market interest rates and may be linked to the rate of inflation, providing both potential benefits and risks to the borrower.