A servicing fee is a monthly fee charged by the lender to cover ongoing servicing costs such as mailing out monthly statements, verifying occupancy on a periodic basis, and answering customer inquiries and phone calls. If a servicing fee is charged, it is usually around $30.
HECM reverse mortgages don’t require monthly payments (as long as program obligations are met, such as paying property charges). Any unpaid interest is simply added to the loan balance over time. This is how it works for servicing fees as well; you don’t need to pay them out of pocket. Servicing fees simply accrue onto the loan balance over time. and you won’t need to pay it out of pocket. Lenders typically just add it to the loan balance.
Servicing fees are becoming less common in the reverse mortgage industry today, but it still doesn’t hurt to ask your lender if they charge one. If they do, see if they can waive it. If not, it might be worth checking with some other lenders to see if you can avoid this added expense.
Why do lenders charge a servicing fee?
A mortgage servicer is a company that handles long term customer service once a mortgage loan (whether it’s a reverse mortgage or traditional “forward” mortgage) is funded. The servicer’s job is to handle ongoing account maintenance throughout the life of the loan.
A mortgage servicer handles your inquiries and requests for funds, monitors property charge payments, distributes LESA payments, and facilitates the settling of the loan balance once it becomes due and payable. The mortgage servicer also handles numerous unseen tasks to ensure compliance with FHA and HUD guidelines.
In short, mortgage lenders charge servicing fees to cover the overhead associated with maintaining your loan account.
Again, not every company charges a servicing fee these days. Be sure to ask if the lender you’re working with does.
If you’re working with a lender you like but they insist on charging a servicing fee, ask if they will drop their interest rate a little bit to make up for it. The worst they can say is no, right?