On Jan. 5, 2022, Fannie Mae sent out a letter to lenders announcing revised pricing for second-home and high-balance loans. According to the letter, these loan-level price adjustments (LLPAs) are effective for all whole loans purchased on or after April 1, 2022, as well as for loans delivered into mortgage-backed security (MBS) pools issued on or after the same date.

But what exactly does this mean for borrowers? If you are buying a second or vacation home, these loans may have higher interest rates. Especially those lenders that sell these types of loans to the secondary market. How much of the new fees lenders absorb and how much they pass to the borrower will be up to the lender? On second homes the fees range from 1.125 percent to 4.125 percent price adjustment, depending on the loan-to-value ratio. Lenders will likely increase the interest rate to offset the increased costs passed on to the lender from the investor buying the loan.

Mortgages that have balances exceeding the limit of $647,200 are known as a high-balance mortgage, according to The Mortgage Reports. For these loans, FHFA is issuing the following price adjustments, which also depends on the loan-to-value ratio and could affect costs:

• High-balance (Purchase or limited cash-out refinance): 0.5 percent to one percent
• High-balance (Cash-out refinance): 1.25 percent to 1.5 percent
• High-balance (ARM): 0.75 percent to 1.75 percent
• These fees are cumulative, meaning if the purpose is a cash-out refinance and the loan product is an adjustable rate mortgage, both fees will be factored into the resulting interest rate.

Fannie Mae also announced that they will not charge a high-balance price adjustment for first time homebuyers with income less than or equal to 100 percent of their area’s median income.