Springfield Area Blog

Risk-Based Pricing

Starting January 1st, 2008 Fannie Mae and Freddie Mac are initiating risk based pricing for Conventional / Conforming mortgages. Risk based pricing will affect the interest rate or closing costs for a buyer based on their credit score and LTV (Loan to Value). Currently a borrower with a 630 credit score and 5% down payment could get the same rate and closing costs as a borrower with a 720 credit score and 5% down. The new rule will be a tiered approach towards figuring the final interest rate and closing costs.

Following are examples based on a 30 year fixed conventional mortgages with a $150,000 loan amount and 6% interest rate:

Buyer 1

* 680+ credit score

* 5% down payment

* 6% rate – no risk based costs involved

Buyer 2

* 660-679 credit score

* 5% down payment

* 6% rate – 1.000 point ($1,500) will be charged or the rate will be raised to cover the point

Buyer 3

* 640 - 659 credit score

* 5% down payment

* 6% rate – 1.600 points ($2,400) will be charged or the rate will be raised to cover the points

Buyer 4

* 620 - 639 credit score

* 5% down payment

* 6% rate – 2.000 points ($3,000) will be charged or the rate will be raised to cover the points

Buyer 5

* 619 credit score or less

* 5% down payment

* 6% rate – 2.25 points ($3,375) will be charged or the rate will be raised to cover the points

http://www.newsletterproonline.com/newsletters