Quick Answer

By as little as nothing, 0% difference.  To as much as 3.25% of the mortgage amount…or more in rarer circumstances.

Semi-quick Answer

Consider a fixed rate 30 year conventional loan (the most popular type of mortgage loan) with a 5% down payment. FYI, a conventional loan is a mortgage that is not guaranteed or insured by any government agency. Still confused? Think of a conventional loan as a private investor lending you the money. This chart applies for most conventional fixed rate mortgages with terms greater than 15 years.  Meaning, an interest rate that does not change while you have the loan, and the length of your mortgage is more than 15 years.

From the chart, with a 740 or above credit score costs 0.25%, of the loan amount. With a 620 credit score, a charged 3.25% of the loan amount will occur. The difference between the two is 3%. For a 200k mortgage, a person with 620 would need to pay $6000 to get the same interest rate as the person at 740. This is a simply example will all things being equal, and with loans from the exact same lender.

For those who want More Details

Let’s understand this chart further. The numbers not in the blue are adjustments for what is known as the loan-to-value ratio (LTV). The loan-to-value ratio (LTV) is a financial term used to express the ratio of a loan to the value of the home purchased.

Example: Assuming the sales price of a home is the actual value.  With a 5% down payment, the LTV would be 95%. A 20% down payment, the LTV would be 80%….etc.

The LTV ratios are along the top of the chart and the credit scores that correspond with the LTV are along the side. The percentages on this chart are NOT interest rates. The percentages in the middle are a percentage of the loan amount charged to you. These charges (adjusters) are often adjusted into the interest rate. Hence why your friend with a 620 credit score would be paying a higher interest rate for the same loan. (With the same bank and the same loan officer.)

The difference in interest rate between these two credit scores is usually .75% to 1%. Your friend with a 620 credit score could be at a 5% interest rate, and you with the same loan could be at a 4% interest rate. A 1% difference over the course of 30 years makes for some big savings with the higher credit score. In fact, using a 200k mortgage, the person with the 740 would be paying $42,000 less in interest compared to someone with a 620 credit score.  Assuming again, you and your friend are using the exact same lender and loan officer.

Big Difference Between Lenders

I keep mentioning the exact same lender and loan officer. This is because rates vary greatly from bank to bank. They can even vary within the SAME OFFICE for the same loan, depending which loan officer picks up the phone. This may be shocking but it happens every day. A person with a credit score of 740 actually ends up with a higher interest rate than someone with a 620. Because they went to different banks. The 740 person was greatly overcharged by going to an overpriced lender. To avoid avoid getting taken advantage of by the bank, you can know for sure if your interest rate is fair by getting an individual mortgage review.

Jeremy Thuveson

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