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

Question

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 · Answer

@Filip Miletic 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.

Filip Filmar · Answer

Thanks for the explanation! For some reason, such an example was near impossible to find.... until now! :)

Filip Filmar · Answer

Oh I see. What I meant was all else being equal what does the llpa do to the resulting mortgage APR. Suppose that for a loan of $100,000 I would have been charged an APR of 3.5% with 0% llpa. Now assume everything is the same except llpa is now 4.25%. what would the resulting APR be? Cheers, f

Wayne Brooks · Answer

Not really anything you can do it about it....your rate/fees depend on risk...your credit, ltv%, number of units, etc.

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

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