Loan Level Pricing Adjustments (LLPAs) are risk-based fees built into the cost of most loans. They’re a paradox — invisible yet potentially the costliest element of your loan. The logic behind LLPAs is simple: Imagine you’re a lender with two loan applications. One borrower has excellent credit and is putting half down. The other has so-so credit and is putting just 5% down.

One loan feels riskier than the other, right? That’s the logic behind LLPAs. Fannie Mae and Freddie Mac buy loans with varying degrees of risk, but they charge LLPAs when they take on added risk. While “LLPA” is a term specific to Fannie and Freddie, most loans (even through other lending sources) include risk premiums. We call them “add-ons”, “pricing hits”, or “adjustors”.

But where are they hiding? Scour your loan documents, and you’ll never find a reference to “LLPA”. But here’s a clue: You pay LLPAs as a percentage of your loan amount. Sound familiar? Like, say…points? And that’s exactly where they live — inside of your discount points.

Costs can range from a somewhat innocuous 0.125% of your loan amount to 1%, 2%, or even 3% or more. On a $500,000 loan, 0.5% is $2500 — they can be expensive!

Because they’re so consequential to your loan costs, we’re always looking for ways to minimize — or dodge them altogether. We’ll pull back the curtain, explain the LLPAs applicable to your loan, and look for ways to save you a few bucks!