A Word About So - Called
Mortgage junk fees are all upfront lender charges other than points. They include all lender charges expressed in dollars, such as processing fees, lender attorney fees, endorsement fees, and so on. Junk fees may also include one charge expressed as a percent of the loan, called the “origination fee”.
I don’t like the term “junk fees” and wish it had never been coined. The reason is that borrowers tend to interpret it to mean that the lender is performing no real service and/or that a particular fee is too large. This mindset causes borrowers to look for information about how large a particular fee ought to be, and to bargain with the lender to get one or more fees reduced.
This is almost always a waste of time. If a lender is using excessive fees to pad his bottom line, and some do, a home purchaser typically will not learn about it until he is so far along in the process that his bargaining power is nil. On refinances, borrowers have bargaining power right to the end if they are prepared to walk away from the deal, but few are.
In my view, fixed-dollar fees and origination fees are “junk” for reasons other than being overpriced, though many are overpriced. I say this because information about junk fees is extremely difficult to obtain early enough to be useful in shopping. In this respect, junk fees are very different from points, the other type of lender charge.
Points are an upfront lender charge expressed as a percent of the loan amount. Because points are viewed as part of the cost of credit, they are displayed wherever the interest rate is displayed. When one is quoted a price on a mortgage or see a quote in the media, it invariably includes the interest rate and points. Very seldom does it include junk fees.
Bottom line: Junk fees are good to know about so you can ignore them. In addition to the rate and points, your focus should be the total of other fees. When you are shopping, ask the lender for that total in writing, and if the lender will lock it at the time he locks the rate and points. Most lenders will lock it in if you demand it when your in shopping mode.
See Fee Glossary
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