Understanding Mortgage Fees

One of the most perplexing and potentially frustrating aspects of acquiring or refinancing a mortgage is the many fees that you can be charged. You’re just trying to take advantage of lower interest rates, save a bit of money, and maybe be able to plan for a nice vacation with the kids next summer. But the fees! What are they, where do they come from, and why does it seem like there are so many?

In reality, the fees are all quite understandable and, with a little bit of explanation, make sense. The most common types of fees associated with mortgage loans are:

  • Application Fees: Brokers will usually charge this for checking your credit scores and processing your loan request. Figures may vary but it will usually be somewhere in the neighborhood of $300-400.
  • Loan Origination Fee: This fee covers the actual preparation of your loan documents, including any fees for notarization and attorneys (to ensure the legality of the documents).
  • Points: Points are simply an up-front fee that can lower your interest rate. 1 point is 1% of the value of the loan (e.g., one point on a $300,000 loan would be $3000). The more points you are willing to pay up front, the lower interest rate you can receive.
  • Appraisal Fees: Lenders want to ensure they are not giving a loan that is worth more than the property being purchased, so in most cases an appraisal will be done to determine the property’s true value. This usually costs a few hundred dollars.
  • Home Inspection Fees: Most lenders will require a home inspection to ensure that there are no major problems that could impact the value of the house. Again, this is usually a few hundred dollars.
  • Prepaid Interest: Because there is usually a 6 – 8 week lag between closing and the due date of your first payment, you may need to pay the accrued interest leading up to the first payment in advance. This is because interest begins to accrue immediately upon closing.
  • Property Survey Costs: Most lenders will have the property surveyed to make sure there are no discrepancies from the description of the property on the title.

There are other fees that can be applicable to mortgage loans under specific circumstances, such as flood determination fees and assumption fees, but those listed here are the most common.  Whether you’re applying for a mortgage or a mortgage refinance, these are the types of fees and costs that you’ll most likely be dealing with.