Q: I was wondering which, if any, costs of a refinance are negotiable. I am currently in the process of refinancing my mortgage with a local bank and the loan officer tells me that the funding and review fee has gone up $250.  When we bought our home two years ago, that fee was only $150.

A:  Many mortgage customers think they are being gouged by "junk fees" such as processing, underwriting and document preparation fees when they close a loan.  I used to feel the same way when I bought my first home.  But now that I have run a mortgage company for many years, I can honestly say that in most cases those fees are actually there just to cover the administrative expense of processing a mortgage.  And in the past couple of years, those administrative costs have been increasing.

Despite computerization, the mortgage business is highly labor intensive, and much of that labor force is relatively highly paid. As the refinance boom picks up steam, there is more and more paperwork rolling through the mortgage industry and not enough bodies to handle it efficiently. Each loan has dozens of details that must be analyzed and verified. And when you're talking about deals involving hundreds of thousands of dollars, there is no margin for error.

So the bottom line is, yes loan administrative fees have increased recently, but there is little that the average bank or mortgage company can do to control those costs.  There are no "economies of scale" in the mortgage business.  In fact, my experience has been that small mortgage companies are often much more efficient than large banks and mortgage companies because there are fewer sets of hands touching the loan file.

Are the loan closing costs negotiable?  Yes, and no. Some costs can be negotiated, but it today's refinance rush, many mortgage companies have more business than they can handle so they are not in much of a mood to cut their fees.  But it never hurts to ask -- especially if you have a large loan.  The typical loan origination fee for a residential mortgage is one percent of the loan amount.  If the mortgage company was earning a $2,500 fee on a $250,000 loan, they might be willing to "eat" the $250 processing fee.  But if you ask a loan officer to drop the $250 fee on a $100,000 loan where the company is making a gross commission of only $1,000, you are far less likely to be successful.

It's also important to realize that MOST of the closing costs in a mortgage transaction are costs over which the typical loan officer has no control.  For example, the appraisal, title, escrow and credit report fees are all paid to third party providers.  These providers set their own fees and the mortgage company passes them on to the borrower. Many mortgage companies also use document preparation services and flood report services.  Again, those costs are simply passed on to the borrower.  In the case of mortgage brokers like my company, the wholesale lenders we deal with typically charge processing and underwriting fees, which we also pass on to our clients.

So what's left to negotiate?  Not much.  Typically the "loan origination fee" and the mortgage company's own "processing fee."
It certainly never hurts to ask for a break on those fees.  And if it makes sense to the loan officer, you might even get it.  But don't be surprised if your request is met with a blank stare.
Like any professional, loan officers like to think that they work hard and their knowledge and experience makes them worth the money they are paid.

Also be aware that there is usually a correlation between the loan rates and fees that you pay and the amount of service you receive.  Most legitimate mortgage companies offer approximately the same interest rates and loan fees. "Discount" lenders may be willing to do your loan for less, but you may have to suffer through weeks of unreturned phone calls, missed deadlines, etc.  In other words, you usually get what you pay for.  If you want a rock bottom interest rate, expect the "hassle factor" to increase significantly.

NOTE:  Please read our Company Profile to find out why you should work with Best Mortgage!

  Back to Refinancing Q&A Index

  Back to Main Q&A Index