LLPA: How Loan Level Price Adjustments Impact the Cost of a Mortgage
Loan-level price adjustments (LLPA), are something most borrowers are completely aware of. But they directly impact the rate and fees you pay for a mortgage. If you’re planning to refinance your mortgage or buy a home, it’s good to understand how LLPAs work so you can set yourself up to get the best deal possible.What are LLPA?
Simply put, LLPAs are added charges for certain risk factors on a mortgage. They are high loan-to-value (LTV), low credit scores, cash out, investment property, etc. They’re calculated and assessed as a percentage of the loan amount. For example, if the loan amount is $100,000 and the total LLPAs equals 0.25%, the charge would equal $250.

For credit scores above 660, the LLPA is actually higher for a lower LTV at the 80% boundary. Is this because the PMI required at 80+ LTV derisks the loan for the GSEs? It seems like people looking to put roughly 20% down might be best off putting 19.99% down instead and deal with a couple months of PMI, especially if PMI is particularly cheap. (On my own mortgage, the PMI is equivalent to less than 0.1% interest charges.) As you mention, the lender may not necessarily pass this charge directly to the borrower, but it seems like it might produce a weird discontinuity in pricing for lenders that simply add a fixed margin.