Does a Low Credit Score Affect My Interest Rate?

by Brian Berman on May 6, 2010

When buying or refinancing a home with Mortgage Atlanta we estimate your ability to pay back your home loan based on your credit score. All lenders base your interest rate on the amount of risk your credit portfolio shows. Therefore, a low credit score can results in a higher interest rate, higher monthly payments and higher closing costs!

A underwriter looks at a borrower who has a credit score of 620 as a much higher risk than someone who has a 740 credit score. Mortgage Atlanta may still agree to provide a mortgage to the borrower with the 620 credit score; however, there may be a slightly higher interest rate because of the credit score.

A borrower who increases his or her credit score from 620 to 720+ can potentially save $289 per month on mortgage payments, $3,468 per year, and approximately $104,323 over the life of the 30-year loan. This is on a loan amount of $250,000. The higher the loan amount the greater the savings!

30-Year Fixed Rate with a Principal Loan Amount of $250,000
FICO SCORE
APR
MONTHLY PAYMENT
INTEREST PAID
Above 720
4.990%
$1,341
$232,590
700 to 719
5.115%
$1,360
$239,485
675 to 699
5.653%
$1,444
$269,683
620 to 674
6.80%
$1,630
$336,913
Below 620
People with scores below 620 aren’t usually accepted for this type of loan any longer.

SOURCE: Credit Resource Corp., How Much Does a Low Score Cost You? http://www.creditresourcecorp.com

Loan Level Price Adjustment Fees (LLPAs)

In March 2008 Fannie Mae and Freddie Mac implemented Loan Level Price Adjustments.  These adjustments can affect your rate or your closing costs.  All conventional (and as of 2010 Government) loans are subject to these adjustments.  Your Mortgage Atlanta Loan Specialist can help price your interest rates and closing costs!  See the following chart to see where your scores fall:

 

Fico Score
LLPA You Will Pay
Below 659
3.00%
660-679
2.50%
680-699
1.50%
700-719
0.75%
720-739
0.50%
740+
0.00%

So on a 80% LTV $250,000 loan amount, carrying a middle credit score of less than 620 could cost you an extra $7,500 upfront or a higher interest rate!!


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Mortgage Atlanta, LLC. 601 Woodlawn Dr,, Suite 340. Marietta GA 30067. Phone: 678-564-1522 info@mortgage-atlanta.com

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