What are the Fees Associated with Mortgage Servicing?

Mortgage servicing is a general term used for all services provided on a mortgage after it is initially sourced and signed with a lender. Examples of mortgage servicing include payment reminders, assistance with payment plans, deferment options and even refinancing. Depending on your mortgage and mortgage company, different services will be offered. Some mortgage lenders offer a large degree of services without large fees. Others provide very little and charge for any use of the services.

Payment Services

The most common form of service offered at little to no charge is assistance in tracking and making payments. Lenders provide this service because it is a better means of assuring they are paid on time and a loan does not go delinquent. Lenders are constantly vigilant of what is termed "loss mitigation." The term means they will spend money in order to protect their losses. One example of loss mitigation is payment servicing. Mortgage lenders may offer direct debit payments through your existing bank or a new account. You will only have to keep an account or debit card on file with the lender in order for your payments to be withdrawn automatically, reducing the chance you will miss a payment. Other payment services include online payment or email notifications. All of these options cost the lender relatively little in response for a very high reward. They will cost the borrower very little in return.

Mid-Mortgage Options

Some lenders offer specific loans designed with mid-mortgage options. Examples include loans that can provide a principal or interest rate reduction mid-term. This is a rare option on a mortgage; it is more common for a student loan. Lenders who offer mid-mortgage reduction options are usually extending loans to first time home buyers or students, like medical students and legal students. These borrowers tend to have low credit or low income when they first take a mortgage. However, since these things will typically change very quickly, the borrowers may not want to lock in terms for a high risk mortgage. They may be offered the flexibility of mortgage servicing mid-loan as an incentive to sign on for a longer mortgage. Banks and lenders like to offer this option to historically responsible borrowers. If a lender does not extend this option up front, it will cost a hefty fee to refinance the mortgage down the line.

Contract Modification Services

The most expensive mortgage servicing options are modification services. Lenders do not like to modify contracts to make them more favorable to the borrower. Since a contract is legally binding, a mortgage lender has few reasons to offer modification free of charge. The typical fees include a standard refinance or prepay fee, a new loan origination fee, and even a potential for a negative credit report for a borrower who modifies against a lender's wishes. Because of the high cost of modification, the best reason to modify is to avoid default. Otherwise, it is best to avoid modification unless the savings greatly outweigh the fees being assessed by the lenders.