For high-cost mortgages, which payment terms are not allowed?

In the context of high-cost mortgages, balloon payments are not permitted due to consumer protection regulations that aim to prevent borrowers from facing unexpectedly large payments at the end of the loan term. Balloon payments can create significant financial strain on borrowers, as these payments typically require repayment of a large sum of money that may not have been planned for.

High-cost mortgages are governed by specific regulations under the Truth in Lending Act, particularly the Home Ownership and Equity Protection Act (HOEPA). These regulations are designed to ensure that borrowers are treated fairly and are aware of the risks associated with certain loan characteristics. The prohibition of balloon payments in high-cost mortgages is intended to help borrowers maintain financial stability and to avoid situations that could lead to foreclosure due to unmanageable debt.

In contrast, fixed-rate payments, interest-only payments, and adjustable-rate payments are not prohibited in high-cost mortgages. While these payment terms can also carry risks, they are not specifically banned, allowing for flexibility in the types of mortgage products offered to consumers within regulatory guidelines.