You probably know that a higher credit score helps you get a better interest rate. But there’s more to it than that.
Your credit score directly affects the interest rate on your mortgage. The difference between a “good” versus an “excellent” credit score can save you thousands of dollars on interest.
Most people know that a healthy credit score gets you a better rate on your home mortgage. But interest rates aren’t the only costs associated with your credit score.
Additional fees associated with your credit score
Depending on the type of home loan you get, there are other fees that can be impacted by your credit score. For example, certain types of home loans come with additional mortgage insurance fees. Having a higher credit score might help lower those mortgage insurance fees.
Your credit score also affects the Loan Level Price Adjustment fees (LLPAs) paid on your loan. These are upfront premiums that mitigate risk and can be added to your interest rate. The lower the credit score, the higher the risk, and the higher the LLPA. Other factors are considered, too, such as the amount of your down payment and the type of home.
LLPAs can potentially add thousands to the upfront cost of your loan.
The bottom line
In addition to mortgage insurance fees, LLPAs are yet another reason why it’s important to take care of your credit score.
Talking to a mortgage professional can give you a better idea of how your credit score will affect the interest rate and other fees. If you already have a home mortgage, but your interest rate is high, then it may make sense to refinance, especially if your credit score has improved.