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LENDER FEE - Why Lenders Charge a Fee

Posted by Sean Stewart on 19 April 2021
LENDER FEE - Why Lenders Charge a Fee
When you get into alternative lending you will start to see lender fees being charged by the lender. No A-lender will charge a lender fee, only alternative or private lenders will charge a lender fee.

Any type of lending is based on RISK. The riskier the transaction, the higher the cost of borrowing.  Alternative lenders have two ways to compensate for the increased risk which is associated with alternative mortgages, (1) increase the interest rate, and (2) charge a fee. So, why charge both?

Increasing the interest rate spreads the risk over the term of the mortgage, typically one or two year term. Whereas, the lender fee compensates for the risk upfront. Lenders analyze the overall risk of the transaction and then decide how to best manage the associated risk. Hence, the interest rate and lender fee are connected, they are two parts of the overall risk of the mortgage.

Typically, the lender fee covers the lender's upfront cost to setup the mortgage and the increased interest rate covers the ongoing risk of administrating the mortgage. Hence, if the borrower defaults on the mortgage, the lender has covered their upfront costs by charging the lender fee.

Therefore, don't see the lender fee as an additional fee, in fact, it is part of the overall cost of borrowing. In theory, you can manage the mortgage risk by lowering the lender fee and increasing the interest rate further, but practically, lenders want to cover their upfront costs.

Contact Us
For more information on lender fees, contact your local Ajax Mortgage Broker, Sean Stewart at 905-427-9596 or sean@seanastewart.com
Author: Sean Stewart
About: Mortgage Broker
Tags: Mortgage Products

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