The Average Prime Offer Rate (APOR) acts like a baseline mortgage rate, offering a national average for borrowers with strong credit profiles. Published weekly by the Federal Financial Institutions Examination Council (FFIEC), APOR is calculated using data from Freddie Mac’s Primary Mortgage Market Survey® and reflects average interest rates, points, and terms offered to prime borrowers across various loan types—including 30-year fixed, 15-year fixed, adjustable-rate mortgages (ARMs), and jumbo loans.
Lenders and regulators use APOR primarily to identify Higher-Priced Mortgage Loans (HPMLs). Under the Truth in Lending Act, if a loan’s Annual Percentage Rate (APR) exceeds APOR by a certain margin, the loan is designated as an HPML. This classification triggers enhanced consumer protections required by the Consumer Financial Protection Bureau (CFPB).
HPML thresholds vary by loan type:
- First-lien mortgages: APR exceeds APOR by 1.5 percentage points or more
- Jumbo first-lien mortgages: APR exceeds APOR by 2.5 percentage points or more
- Subordinate-lien mortgages (e.g., HELOCs): APR exceeds APOR by 3.5 percentage points or more
For example, if the APOR for a 30-year fixed mortgage is 6.75%, any loan with an APR above 8.25% (6.75% + 1.5%) would be classified as an HPML. While HPMLs aren’t inherently bad loans, their higher cost means lenders must provide extra safeguards.
These mandatory protections include:
- Setting up an escrow account for property taxes and insurance for at least five years to help borrowers stay current on important payments. Learn more about escrow accounts on FinHelp in our article on Escrow Account.
- Obtaining a full property appraisal by a certified appraiser, ensuring the home’s value supports the loan amount. For detailed insights, see our Property Appraisal Review glossary entry.
- In certain cases, a second appraisal is required, especially for homes flipped at a significantly higher price within 180 days of the previous sale.
Common misconceptions include assuming APOR is the rate you will receive or that an HPML indicates a predatory loan. In reality, APOR is an average benchmark for prime borrowers, and HPMLs are simply higher-cost loans that come with enhanced protections.
For borrowers, keeping an eye on APOR can help in evaluating mortgage offers and understanding the regulatory landscape designed to maintain fair lending practices.
Sources:
- FFIEC APOR Methodology: https://www.ffiec.gov/ratespread/apor_methodology.htm
- CFPB on Higher-Priced Mortgage Loans: https://www.consumerfinance.gov/ask-cfpb/what-is-a-higher-priced-mortgage-loan-hpml-en-1795/
For further details on mortgage types and loan terms, visit our Mortgage Loan glossary.
