Read This Before You Skip Your Credit Card Payment!
There is news circulating on the internet about a supposed new mortgage tax on borrowers with high credit scores.
This news is not entirely true!
Intentionally lowering one’s credit score will not result in a better mortgage rate.
The news actually pertains to changes in Loan Level Price Adjustments (LLPAs) imposed by Fannie Mae and Freddie Mac, which guarantee most new mortgages. LLPAs are fees based on loan features such as credit score and loan-to-value ratio, and changes to them were announced in January of this year. Confusion has arisen because the changes go into effect on loans delivered on or after May 1st, 2023, and lenders have already implemented them for many loans. The changes in LLPAs benefit those with lower credit scores and increase costs for those with higher credit scores, but the actual fee paid by low-credit borrowers will not be lower than that paid by high-credit borrowers.
The change is a minor adjustment to the fee structure that benefits borrowers with lower credit scores and increases costs for those with higher credit scores.
However, this does not mean that borrowers with lower credit scores will have lower fees than those with higher credit scores. Therefore, it is not advisable to skip credit card payments in an attempt to secure a lower mortgage rate.