What Is a Mortgage Servicing Fee?

Jane is a freelance editor for The Balance with more than 30 years of experience editing and writing about personal finance and other financial and economic subjects.

A mortgage servicing fee is charged by the company that services your mortgage. This company may or may not be your lender; if not, the loan servicer will withhold part of your monthly payment to the lender in exchange for managing your mortgage.

Definition and Examples of Mortgage Servicing Fees

Mortgages are complicated. Along with repayment terms, interest rates, due dates, and varying mortgage types, there’s a lot of information involved in administering your loan. A mortgage lender is the financial institution that originally lent you money. It may continue to act as your loan servicer, but can also choose to have your mortgage serviced by another company, thus giving that company mortgage servicing rights (MSR).

Note

Your mortgage may be sold without your mortgage servicer changing; in this case, you won’t see any difference in your loan or account.

A mortgage servicing company is the face of your loan. They’re the people with whom you will interact. Their jobs include responding to any questions you have, processing your loan payments, keeping track of both principal and interest paid, and managing an escrow account.

• Alternate names: Loan servicing fee, servicing fee

How Mortgage Servicing Fees Work

These services aren’t free. A mortgage servicing company charges your lender or loan investor for maintaining your loan. It does so by withholding a portion of your monthly mortgage payment from your lender. This is generally around 0.25% to 0.5% of your mortgage balance.

This means that if you have a mortgage of $200,000, and the servicing fee is 0.50%, your servicer will hold back $83.33 of your mortgage payment each month.

Note

You can calculate this by dividing the fee percentage (0.50%) by the number of months in a year (12) and multiplying the answer by the mortgage amount ($200,000).

That said, mortgage servicing fees for which you as the borrower are liable are not routinely charged. Instead, they occur only when specific situations arise. Mortgage servicing fees that your lender pays are another story.

Servicing a mortgage is a declining value proposition. This is because the fee to do so is charged only on the remaining balance of your loan. As your balance drops, so does the monthly fee the servicer can collect. If you stay in your home long term, the net cash flow to the loan servicer may even become negative.

But don’t worry too much for mortgage servicers, as they’re also able to earn interest on your money. This is especially true for those with escrow accounts: The money held in the account can be invested and multiply until your property taxes/homeowner insurance payments are due.

Types of Mortgage Servicing Fees

As a borrower, you sometimes may be on the hook for mortgage servicing fees, although this will depend on your individual situation. Here are some common fees for which you may be liable:

• Returned payment processing fee: This type of fee can be charged when you have insufficient funds in your bank account and the mortgage payment is returned unpaid.
• Bankruptcy fee: This fee is charged as a result of filing for bankruptcy.
• Late charge fee: This is a fee charged when you make a late payment (generally 15 days after the due date)
• Pay-off fee: This occurs when a borrower asks for a statement of the amount required to pay off the loan.
• Property inspection fee: This is a fee to complete a property inspection, which will determine the occupancy or condition of the home. (This usually occurs multiple times after the account is in default.)

You may have experienced one or two of these fees yourself, especially if you’ve ever been late on making your mortgage payments.

Key Takeaways

• A mortgage servicing fee is charged by the company that handles the details of your home loan.
• There are multiple types of loan servicing fees that can be due, either from you or your lender.
• The average monthly fee a servicer charges your lender for managing your mortgage ranges from 0.25% to 0.50%.

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

1. Rocket Mortgage. “Why Do Mortgage Lenders Sell Mortgages to Investors?”
2. Consumer Financial Protection Bureau. “What's the Difference Between a Mortgage Lender and a Servicer?”
3. Rocket Mortgage. “How To Avoid Mortgage Loan Servicing Fees.”
4. Fannie Mae. “Servicing Guide.”
5. Leonard D. Van Drunen and John J. McConnell. “Valuing Mortgage Loan Servicing.” Journal of Real Estate Finance and Economics.

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