Definition and Examples of Mortgage Servicing Fees
Mortgages are complicated. Along with repayment terms, interest rates, due dates, and varying mortgage types, there’s a lot of information involved in administering your loan. A mortgage lender is the financial institution that originally lent you money. It may continue to act as your loan servicer, but can also choose to have your mortgage serviced by another company, thus giving that company mortgage servicing rights (MSR). A mortgage servicing company is the face of your loan. They’re the people with whom you will interact. Their jobs include responding to any questions you have, processing your loan payments, keeping track of both principal and interest paid, and managing an escrow account.
Alternate names: Loan servicing fee, servicing fee
How Mortgage Servicing Fees Work
These services aren’t free. A mortgage servicing company charges your lender or loan investor for maintaining your loan. It does so by withholding a portion of your monthly mortgage payment from your lender. This is generally around 0.25% to 0.5% of your mortgage balance. This means that if you have a mortgage of $200,000, and the servicing fee is 0.50%, your servicer will hold back $83.33 of your mortgage payment each month. That said, mortgage servicing fees for which you as the borrower are liable are not routinely charged. Instead, they occur only when specific situations arise. Mortgage servicing fees that your lender pays are another story. Servicing a mortgage is a declining value proposition. This is because the fee to do so is charged only on the remaining balance of your loan. As your balance drops, so does the monthly fee the servicer can collect. If you stay in your home long term, the net cash flow to the loan servicer may even become negative. But don’t worry too much for mortgage servicers, as they’re also able to earn interest on your money. This is especially true for those with escrow accounts: The money held in the account can be invested and multiply until your property taxes/homeowner insurance payments are due.
Types of Mortgage Servicing Fees
As a borrower, you sometimes may be on the hook for mortgage servicing fees, although this will depend on your individual situation. Here are some common fees for which you may be liable:
Returned payment processing fee: This type of fee can be charged when you have insufficient funds in your bank account and the mortgage payment is returned unpaid. Bankruptcy fee: This fee is charged as a result of filing for bankruptcy. Late charge fee: This is a fee charged when you make a late payment (generally 15 days after the due date) Pay-off fee: This occurs when a borrower asks for a statement of the amount required to pay off the loan. Property inspection fee: This is a fee to complete a property inspection, which will determine the occupancy or condition of the home. (This usually occurs multiple times after the account is in default.)
You may have experienced one or two of these fees yourself, especially if you’ve ever been late on making your mortgage payments.
