Whether you’ve ever applied for a gym membership or withdrawn money from an ATM not affiliated with your bank, at some point in your life, you have probably incurred a service charge or fee.
Fees occur in different places and at various times in our daily life. Sometimes they’re inevitable, but other times, they can be completely avoidable. The same goes for mortgage servicing fees.
What Are Mortgage Servicing Fees?
Mortgage servicing fees are charged by the mortgage lender who handles your home loan. Some services they can charge for include loan document requests, payments, overnight shipping, verification of mortgage, among other charges.
The good news is, not all mortgage lenders charge the same fees.
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The Different Types Of Servicing Fees
There are different types of servicing fees that you might encounter in the real estate industry. We’ve broken down the three most common fees you may come across and what you can do to try and avoid them.
Corporate Advance Fees
A corporate advance fee is essentially a fee charged by a lender to cover servicing-related expenses that were paid with servicer funds, rather than escrow (taxes and insurance) funds. This charge typically occurs when something is paid on behalf of the borrower.
Whether you’re responsible for paying back a corporate advance depends on the cause of the advance. There are instances in which the fee may be paid by a third party.
Corporate Advance Fee Example
Practical application may help you get a better understanding of this. Let’s briefly run through a couple examples.
If a borrower sends in a payment for slightly less than what the full payment is, or if the borrower’s escrow increases and they are unaware or forget that the payment has increased, the lender may cover the difference.
This ultimately benefits the borrower because a missed mortgage payment or incorrect payment amount could negatively affect the borrower’s credit report due to a simple mistake or oversight.
There are also corporate advances for other items that you may be asked to pay. If you have a homeowners insurance claim, your mortgage servicer may be required to send someone out to make sure the work is completed. This cost may be passed along to you on a future mortgage statement.
Loan Recast Fees
With a loan recast, your loan term and interest rate remain unchanged, while your monthly payment is lowered by paying an additional lump sum of money to the unpaid principal balance of a loan.
Typically, borrowers pursue this option when they want to lower their monthly mortgage payments.
Depending on your financial situation, you could also choose to refinance instead. The current interest rate on your loan will help determine if this is the best route for you to take, compared to a recast.
Late Payment Fees
Sometimes life can throw you curveballs that affect your ability to make your mortgage payment on time. If this occurs, don’t stress just yet, you have options!
A late payment fee is pretty much self-explanatory and occurs when a borrower misses a mortgage payment. Traditionally, mortgage payments are due on the first of each month. Lenders usually have a grace period that allows you to still make the payment before there’s a late charge.
The amount of the late fee will be listed in your mortgage note. This can vary based on who the investor is in your mortgage. Additionally, certain states have restrictions on the maximum late charge, so amounts may vary quite a bit across the country.
Even the most meticulous budgets can be thrown off. You could have an unexpected medical emergency in your family or a situation where you or a family member loses their job. Life happens, and when it does, it can cause you to fall behind on your payments, causing late fees to pile up, making your loan more difficult to pay off.
If you find that you can’t pay your mortgage on time or you think there’s a chance you can’t pay it at all, the best thing to do to avoid a late fee is contact contact your servicer as soon as possible. and see your options so you can make the best financial decision.
The Bottom Line: Servicing Fees Can Be Avoidable
As you can see, even when life throws a wrench into the works, there are still ways you can avoid servicing fees. You just have to make sure you know the different types of fees there are, as well as what to do if you happen to deal with them in the real estate industry.
Interested in learning more about fees associated with mortgages? Check out what mortgage origination fees are and why lenders charge them.
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Victoria Araj
Victoria Araj is a Staff Writer for Rocket Companies who has held roles in mortgage banking, public relations and more in her 15-plus years of experience. She has a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.
