What You Need to Know About the New Mortgage Fee Structure Change in May 2023

A new rule has emerged in the mortgage industry that may seem counterintuitive to many borrowers: the better your credit score, the higher your mortgage rate may be.

Traditionally, borrowers with high credit scores have been able to secure the best mortgage rates. However, recent changes in the industry have led to a shift in this trend. Lenders are now using risk-based pricing, which means that they are adjusting their rates based on a borrower’s credit score and other factors.

Under this new rule, borrowers with lower credit scores may be offered lower rates, while those with higher credit scores may be subject to higher rates. This is because lenders view borrowers with higher credit scores as less profitable, as they are more likely to pay off their loans early and therefore not generate as much interest for the lender.

What are the fee changes?

Under the new rules, high-credit buyers with scores ranging from 680 to above 780 will see a spike in their mortgage costs – with applicants who place 15% to 20% down payment experiencing the biggest increase in fees.

Under the revised LLPA pricing structure, a home buyer with a 740 FICO credit score and a 15% to 20% down payment will face a 1% surcharge – an increase of 0.750% compared to the old fee of just 0.250%.

Meanwhile, buyers with credit scores of 679 or lower will have their fees slashed, resulting in more favorable mortgage rates. For example, a buyer with a 620 FICO credit score with a down payment of 5% or less gets a 1.75% fee discount – a decrease from the old fee rate of 3.50% for that bracket.

While this may seem unfair to borrowers with good credit scores, it’s important to remember that mortgage rates are just one factor to consider when choosing a lender. Other factors, such as customer service, loan terms, and closing costs, should also be taken into account.

What can you do?

Additionally, borrowers with good credit scores can still negotiate with lenders to try to secure lower rates. Shopping around for the best rates and being willing to negotiate can help borrowers get the best deal possible.

It’s also important to note that while the new rule may result in higher rates for some borrowers, it’s not a universal trend across the industry. Different lenders may have different policies, and borrowers should always do their research and compare rates from multiple lenders before making a decision.

In the end, the key takeaway from this new rule is that borrowers should not assume that a good credit score will automatically lead to the best mortgage rate. By staying informed, shopping around, and negotiating with lenders, borrowers can still find ways to secure the best possible deal on their mortgage.


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About the Author
Ryan Coleman
Ryan is from Richmond Virginia and attended college here in Knoxville Tennessee. He is married to his beautiful wife April, they have one daughter and one son who reside in Knoxville. Ryan is a highly trained, knowledgeable Real Estate Broker and Investor (owning both Residential Investment & Commercial Real Estate). For over 20 years, Ryan has spent much of his time helping buyers and sellers find their perfect dream home, devoting his personal attention during the entire transaction until and beyond closing.