How To Avoid Servicing Fees On Your Mortgage
Servicing fees are dues that lenders charge to process your loan or mortgage paperwork. We’ll take a look at three of the most common loan servicing fees you might see on your mortgage and how you can avoid them.
3 Types Of Servicing Fees
The three types we’ll feature here include corporate advance fees, loan recast fees and late payment fees.
Corporate Advance Fees
Corporate advance fees are dues that go to your lender for covering service-related charges. For example, let’s say you send in a monthly payment for less than what you owe. Your lender may cover the difference. Later, you'll receive a bill from your lender so you can cover what you owe. This is beneficial for you because a late payment can negatively affect your credit score.
Corporate advance fees don’t include charges for expenses that come out of your escrow account – things like property taxes and insurance aren’t corporate advance fees. You may encounter corporate advance fees if you request an overnight document delivery.
Some mortgage lenders charge interest on corporate advance fees and others don’t. For example, Quicken Loans® doesn’t add interest to any corporate advance fees you accumulate. This can save you money over time, so make sure you know your lender’s interest rates before you apply for a loan.
Avoiding corporate advance fees starts with being diligent regarding your monthly payments. Double-check how much you owe before you send funds and be sure you’re sending the right amount. You can also avoid these fees entirely by enabling auto-pay. Auto-pay is a feature that some mortgage companies offer that automatically deducts your payment when it’s due each month. You can enable autopay from your online account when you get your mortgage from Rocket Mortgage®.
Loan Recast Fees
When you recast your loan, you make a large payment toward your loan’s principal balance. Your lender then recalculates your monthly payment and restructures your loan term. Most homeowners recast their loan to get a lower monthly payment. Some lenders charge up to $4,000 to recast a loan. Others (like Quicken Loans) only charge $250. The amount that you pay for a recast depends on your lender’s regulations.
Let’s say your lender will charge you thousands to recast. You may want to consider refinancing your loan instead. When you refinance, your lender pays off your old loan and issues you a new loan with terms that are better for you. Refinancing can often save you money and allow you to change your monthly payment compared to the cost of a recast. You may even have the option to roll your closing costs into the principal balance of your loan with a no-closing-cost refinance.
Contact a Home Loan Expert at Rocket Mortgage® today to learn more about your refinancing options.
Late Payment Fees
Many lenders charge a fee equal to a certain percentage of your mortgage payment if you pay late one month. Most late payment fees range from 4% – 6% of your total monthly payment. For example, if you pay $1,000 to your lender every month and you miss a payment, your lender might charge you a $40 – $60 late fee. You’ll usually incur this fee every time you miss a payment, so it’s financially beneficial to stay on top of your loan.
Know how much you need to pay each month and write down your payment due date. Enable auto-pay to help avoid accidentally missing a monthly payment.
It’s easy to fall behind on your payments if you run into a financial emergency. This can lead to a series of missed payments and compounding late fees. It can be especially easy to fall into debt if you need to borrow money to pay off what you owe. For the best chance of avoiding late fees altogether, make sure you have a robust emergency savings account before you apply for a mortgage. Most experts recommend keeping at least 3 months of living expenses in your emergency account.
The best thing to do is contact your lender before your payment is due if you don’t have enough money in your emergency fund and you do run into financial hardship. Your lender might be able to waive your late fee if you can explain your financial situation, especially if you have a long history of on-time payments.
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Servicing fees are the fees you pay to your lender in exchange for executing and managing your loan. There are three major types of servicing fees: corporate advance fees, loan recast fees and late payment fees. A corporate advance fee is what you pay in exchange for a service your lender temporarily covers. For example, imagine that you make a mortgage payment that’s less than the total amount you owe. Your lender will often pay off the remainder and send you a corporate advance fee. You can avoid corporate advance fees by keeping track of your loan and making sure you pay the full balance each month.
A loan recast fee is a cost that your lender charges to recalculate your monthly payment after you pay down a large portion of your principal. Some lenders charge thousands of dollars to recast a loan while others charge as little as $100. If your lender has an expensive recasting fee, consider refinancing instead.
A late payment fee is a percentage that your lender charges when you miss a payment. Making your payments on time and enabling auto-pay are two ways to avoid late payment fees. If you run into financial troubles and can’t make your payment, contact your lender ahead of time. They may be able to waive your fee, especially if you’ve made all your payments on schedule in the past.
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