The new mortgage fees are changes to the loan-level price adjustments (LLPAs) that Fannie Mae and Freddie Mac charge on the loans they purchase from lenders. LLPAs are upfront fees that are taken as a percentage of the loan amount and vary based on the borrower’s credit score, down payment, and other loan features. Most borrowers pay LLPAs in the form of a higher mortgage rate, with riskier borrowers paying more than those with high credit scores and large down payments.
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The new LLPAs will update the current fee structure that has been in place since 2008. The changes will affect the fees for different types of loans, such as high-balance loans, second home loans, and cash-out refinances. The changes will also affect the fees for different credit score and down payment combinations.
According to the Federal Housing Finance Agency (FHFA), the regulator of Fannie Mae and Freddie Mac, the new LLPAs will increase costs to borrowers overall by 0.04 percentage point1. That means a borrower who would have paid a 6.5% APR under the old fees would pay 6.54% now.
Who will pay more or less under the new mortgage fees?
The new LLPAs will have different impacts on different borrowers, depending on their loan type, credit score, and down payment. Here are some examples of how the new fees will compare to the old ones:
- For high-balance loans in high-cost housing markets, the new price adjustment ranges from 0.5% to 1% of the loan amount2. This is an increase from the previous range of 0.25% to 0.75%. For example, a borrower with a 720 credit score and a 20% down payment who takes out a $600,000 loan in a high-cost area would pay an extra $1,500 in fees under the new structure.
- For mortgages on second homes, the new upfront fees range from 1.125% to 4.125%, depending on the size of the down payment2. This is an increase from the previous range of 0.75% to 3%. For example, a borrower with a 740 credit score and a 10% down payment who takes out a $300,000 loan for a second home would pay an extra $1,125 in fees under the new structure.
- For cash-out refinances, the new upfront fees range from 0.375% to 3%, depending on the loan-to-value ratio and credit score2. This is a slight decrease from the previous range of 0.5% to 3%. For example, a borrower with a 700 credit score and a 80% loan-to-value ratio who takes out a $200,000 cash-out refinance would save $250 in fees under the new structure.
- For purchase loans and no-cash-out refinances, the new upfront fees vary by credit score and down payment3. In many cases, borrowers with higher credit scores will pay more, while borrowers with lower credit scores will pay less. For example:
- A borrower with a 780 credit score and a 3% down payment who takes out a $300,000 loan would pay a fee of 0.125%, or $3753. This is a decrease from the previous fee of 1%, or $3,000.
- A borrower with a 700 credit score and a 20% down payment who takes out a $300,000 loan would pay a fee of 1.375%, or $4,1253. This is an increase from the previous fee of 1.25%, or $3,750.
- A borrower with a 620 credit score and a 5% down payment who takes out a $300,000 loan would pay a fee of 2%, or $6,0003. This is also an increase from the previous fee of 1.75%, or $5,250.
Why are the mortgage fees changing?
The FHFA says that the new LLPAs are based on updated data and analysis that reflect the current risk profiles of borrowers and loans1. The agency claims that the new fees will improve pricing alignment across different types of loans and borrowers, enhance market stability and liquidity, and support affordable housing goals.
However, not everyone is happy about the new mortgage fees. Some industry groups have criticized the changes as unfair, unnecessary, and harmful to consumers and lenders.
For example, the Mortgage Bankers Association (MBA) has argued that the new fees will make mortgages more expensive for many borrowers who have been responsible with their credit and savings4. The MBA also says that the new fees will reduce competition among lenders and create operational challenges for implementing the new pricing.
The National Association of Realtors (NAR) has also expressed concerns that the new fees will hurt the housing market recovery and affordability, especially for first-time and low-income homebuyers4. The NAR says that the new fees will add to the already high costs of homeownership and discourage potential buyers from entering the market.
How can you avoid or reduce the new mortgage fees?
If you are planning to get a conventional loan backed by Fannie Mae or Freddie Mac, you may want to act fast before the new fees take effect on May 1. However, keep in mind that many lenders have already started using the new pricing, so you may not be able to avoid the fees completely.
Alternatively, you may want to consider other types of loans that are not subject to the new fees, such as government-backed loans (like FHA, VA, or USDA loans), jumbo loans, or other non-conforming loans. However, these loans may have their own fees, requirements, and limitations, so you should compare them carefully with conventional loans.
Another way to reduce the impact of the new fees is to improve your credit score and increase your down payment. These factors can lower your risk profile and qualify you for lower fees. You can also shop around for different lenders and mortgage rates to find the best deal for your situation.
The bottom line
The new mortgage fee structure that will take effect on May 1 will change the costs of getting a conventional loan backed by Fannie Mae or Freddie Mac. Depending on your loan type, credit score, and down payment, you may pay more or less in upfront fees than before. You should be aware of how the new fees will affect your mortgage and explore your options to find the best loan for your needs.
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