The FHFA announced today that the pricing of mortgage interest rates for second homes or high balance mortgages will be more expensive. This impacts conventional mortgages (Fannie Mae and Freddie Mac) and is effective for loans that are delivered on or after April 1, 2022 – i.e. I expect to see the price increases to start happening soon.
This is being implemented by increasing the “LLPA” (loan-level price adjustments). The LLPAs are based on several factors, such as loan to value, credit score, property type, occupancy, loan amount and type of transaction to name a few. The LLPAs are cumulative, meaning that the more (risk) factors, the more it will expensive a mortgage rate will be (by either rate or fee/points).
Here is an example of current LLPA’s that impact pricing a conventional mortgage. (The loan to values are reflected on the next graph below with the upcoming fee hike).
The new LLPA (below) which goes into effect in a few months will cost second homes and high balance mortgages significantly more than current pricing.
For example, if you have a high balance mortgage that’s for a purchase or rate-term (no-cash out) refi at an 80% loan to value, right now the LLPA (hit to fee) would be 0.25%. (0.25% of the loan amount in the form of points/fee OR factored into the interest rate). Once the new pricing goes into effect, the same scenario would have a full 1.000% hit to fee, an increase of 0.750%!
Conforming high balance mortgages are available in counties that have a higher cost. In Washington state, King, Pierce and Snohomish counties have high balance conforming loan limits. The conforming high balance price hits will impact conforming mortgages with loan amounts from $647,201 up to $891,250 on a one unit dwelling. Fannie Mae notes that the new high-balance LLPA will not apply to first time home buyers if the total qualifying income of all borrowers is less than or equal to 100% of the area median income where the property is located.
It’s even worse for second homes. Currently, a second home at an 80% loan to value has no additional hit to fee. The new pricing has a whammo hit of 4.125% in fee to a second home at an 80% loan to value. Loan amounts with loan to values over 70% will have the same base LLPA as investment property.
Roughly (and I mean roughly), 1.000% in fee (or points) equates to about 0.25% in interest rate. It really depends on pricing so it could be more or less – this is just to provide an idea of how expensive financing second homes will become when the LLPA goes into effect.
Bottom line, RUN, don’t walk to your local licensed Loan Officer if you’re considering refinancing or buying a second home or high balance conforming mortgage as interest rates will be much higher.
If you are considering buying or refinancing a home located anywhere in Washington state, I’m happy to help you! Click here for a no hassle mortgage rate quote.
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