The mortgage world was set abuzz in March with news that regulators decided to change how FICO scores impact individual mortgage rates. Outrage over these changes was largely fueled by misinformation spread by mainstream news outlets. Many news outlets sensationalized the issue by making inaccurate claims that low FICO score individuals would now receive lower interest rates than high FICO score individuals. In actuality, the gap between good FICO score individuals and low FICO score individuals did shrink overall but did not flip.
Before the change:
800 Fico Score receives a 5% rate
680 Fico Score receives a 6% rate
After the change:
800 Fico Score Receives a 5.25% rate
680 Fico Score Receives a 5.75% rate
While it certainly remains up for debate whether the changes made will have a positive or negative impact on the mortgage landscape, what became abundantly clear is that most people do not understand how mortgage rates work. Mortgage rates are determined by taking a base interest rate for the loan program utilized and adding LLPA’s (Loan Level Pricing Adjustments) to determine a final interest rate.
These LLPA’s cover a variety of factors including loan-to-value, credit score, property type, and loan amount. In general the riskier a loan is (lower credit score, higher loan to value), the larger the Loan Level Price Adjustments will be. Below is an example of some of these Loan Level Price Adjustments.
It is important that you speak to an experienced mortgage loan originator who is aware of Loan Level Price Adjustments as it will ensure you get the best possible financing. Feel free to give us a call at 760-930-0569 and one of our Mortgage Loan Originators will be happy to answer any questions you may have and help you explore your options.