How to avoid three common mortgage servicing fees

After you close on your home loan, you may have to pay certain costs beyond what is listed on your Closing Disclosure. The company that handles your monthly billing statement – your mortgage servicer – manages your loan account on behalf of an investor. While these companies typically charge standard administrative costs behind the scenes, certain mortgage servicing fees can occasionally be passed down to you. Luckily, many of these unexpected expenses can be avoided entirely.

What are mortgage servicers?

Mortgage servicers handle collecting your mortgage payment. Your servicer is your main point of contact after closing on your home loan and may or may not be your original lender.

The servicer collects your payment, forwards the principal and interest to the investor in your loan, and maintains any escrow account you have for taxes and insurance. You can learn more about how these entities operate by reviewing our guide on mortgage servicing companies.

The primary way that servicers make money is by keeping a small portion of your monthly principal and interest. But they may make additional money by charging mortgage loan servicing fees.

Mortgage fees to avoid

Three common servicing fees include corporate advance costs, charges for a mortgage recast, and late-payment fees. We’ll run through when these fees apply and how to avoid them.

Corporate advance fees

If your mortgage servicer covers specific loan or property expenses on your behalf, this is called a corporate advance. These advances are essentially repayments of amounts paid by your servicer to maintain your mortgage when your account falls short.

A typical example is making a monthly payment that is less than your full mortgage payment or escrow obligation. Your servicer may cover the remaining balance so there’s no immediate, negative impact on your credit score, and you’ll be billed for it in the future. You should know that some servicers even charge interest on these corporate advance fees. While Rocket Mortgage doesn’t, you'll want to check with your specific servicing company on its policies.

Other examples of corporate advance fees include expenses related to foreclosure and bankruptcy proceedings, such as property preservation.

Your escrow account specifically covers property taxes and homeowners insurance. If the amount of money in your account is lower than the full amount needed to pay for these items, the servicer advances the money, which is then repaid either in a lump sum or spread out over the next year after your next escrow analysis. Ultimately, you can avoid these fees entirely by simply paying your full mortgage note on time.

Mortgage recast fees

A mortgage recast involves making a large lump-sum payment toward the principal of your mortgage. Your servicer then reamortizes the loan to lower your monthly payment while keeping your original interest rate and loan term the same.

For example, if you have a 30-year mortgage and do a recast 5 years in, your monthly payment will drop. This lower payment is calculated because your remaining 25-year term is now applied to a loan balance that’s significantly lower than your original balance.

While a recast is an excellent tool for lowering your monthly housing costs, servicers typically charge an administrative fee to process the change. If you want to bypass this expense entirely, you can avoid these fees by opting to refinance your loan when market interest rates drop, or by simply continuing to make extra principal payments over time without requesting a formal account reamortization.

Mortgage recast vs. refinance

Servicers have specific requirements and fees when it comes to recasting. At Rocket Mortgage:

• You must have made at least two payments toward your loan, without paying ahead.
• There must be at least $10,000 in reduced principal payments since your loan closed or was last recast.
• There’s a flat $250 fee.

In certain circumstances, if rates have fallen since you closed on your original mortgage, it may make more sense to refinance rather than recast to lower your payment.²

The key question to ask yourself is what the breakeven on a refinance would be compared to what you save monthly, because closing costs average 3% – 6% of the loan amount. You can calculate how long you would have to stay in the home for it to make sense.

Example of how to calculate your break-even point:

• Refinance closing costs: $4,000
• Monthly payment savings: $200
• Calculation: $4,000 divided by $200 = 20 months

In this scenario, it will take 20 months to recover your upfront costs. If you plan to stay in your home longer than 20 months, refinancing is the better long-term choice. If you plan to move sooner, paying the $250 recast fee is likely the more cost-effective way to lower your payment.

Late-payment fees

If you make a payment after the due date on your promissory note, you could be charged a late-payment fee by your servicer. If you make your payment monthly, your due date is usually the first of the month.

From a practical perspective, there’s usually a grace period in your promissory note where you can make your payment without a late fee. It’s often 15 days after the due date, but check your loan documents.

The late fee is often a percentage of the loan amount, based on your state and possibly your loan type. If your late fee is 3% – 5%, a $1,000 payment would incur a late fee of $30 – $50. Late payments beyond 30 days also get reported to credit bureaus.

FAQ

Managing your monthly home loan costs can bring up plenty of questions about who handles your money and what fees are normal. Here are answers to some of the most common questions regarding lenders, servicers, and account expenses.

Is there a difference between a mortgage lender and a mortgage servicer?

Yes. A mortgage lender provides the funds for your home. A mortgage servicer manages your payments on that loan. Your mortgage lender may or may not be your long-term servicer.

What if I can’t make a payment because of a financial emergency?

When you realize you’re going to have trouble making your mortgage payment, contact your mortgage servicer as soon as possible so they can qualify you for possible mortgage relief. Rocket Mortgage clients should log into their Rocket Account and navigate to Help > Payment assistance under the Mortgage tab.

Will my deferral or mortgage relief plan hurt my credit score?

There’s usually at least a temporary negative impact on your credit score from mortgage relief options. The exception is after a natural disaster declaration. In any case, it’s much less than the impact of a foreclosure.

What fees should I expect before I start paying my mortgage?

Before making a mortgage payment, there are several costs paid at or before closing on the house. These include the down payment, application fees, credit report, and title work.

Can I recast my FHA loan?

No. Unfortunately, you cannot recast FHA, USDA, or VA loans¹ from the federal government.

The bottom line: You can ditch extraneous servicing fees

While managing your home loan can sometimes come with unexpected line items, many common mortgage servicing fees are entirely within your control. By making full, on-time monthly payments, you can completely sidestep late fees and costly corporate advances. Furthermore, checking the break-even math on a mortgage recast versus a traditional refinance ensures you never pay unnecessary administrative fees to lower your monthly payment.

Ultimately, staying proactive and reviewing your loan terms is the best way to keep extra cash in your pocket. Ready to see how much you could save on your monthly housing costs? Apply online with Rocket Mortgage today to explore your refinancing and home financing options.

¹Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency. 

²Refinancing may increase finance charges over the life of the loan.

Rocket Mortgage is a trademark of Rocket Mortgage, LLC or its affiliates.