How to work out the effect of LLPA on a mortgage rate?

[Filip Filmar]

Hi, folks.  I'm doing some self-education about loans and lending, and am a bit confused about the effect of loan-level price adjustment (LLPA) on a mortgage rate.

I understand what LLPA is, and there are plenty of places on the Internet that describe it in various level of detail.  However, what I'm missing is an explanation of how LLPA affects the quoted mortgage rate that you get back from your lender.

Would someone be as kind as to give an example?

Thanks a lot!

F

[Stephanie Medellin]

@Filip Filmar  The LLPA's are adjustments to the rebate or YSP portion of your rate.  Say you choose a base rate of 4.5%.  That rate will have a certain amount of rebate before adjustments are factored in.  

Let's say for a 30 year fixed rate loan it's 4.5% interest rate with 3.8 points in rebate. The property you're trying to finance is an investment property at 70% LTV, so the LLPA for LTV is 2.125%. You would take the 3.85 points in rebate and deduct 2.125, leaving you with 1.725. Maybe there is 0.5 point for a 720 FICO, and another 1.0 point for your loan amount bracket. You would then deduct those 1.5 points from the remaining 1.725, leaving you with 0.225 points.

4.5% interest rate with 3.8 points

-2.125 LTV

-0.5 FICO

-1.0 Loan Amount

_____________________________

4.5% with 0.225 points to you as a lender credit.***

It could also be that you don't have enough rebate to cover all the adjustments for a particular rate, and you will either have to pay points, or you could move up to a 4.625% interest rate.

***The example above is just using sample numbers, and will be different for each loan scenario.

These adjustments will already be built into the rate quote you get; you don't have to add them or expect to pay them at closing.