Paying Subordination Fees In Mortgage Refinance

Q: I am currently refinancing my mortgage with the same lender. I have a second mortgage with a different lender.

I have been asked to fill out a subordination request form. The bank I am refinancing with told me my second lender is asking me to pay $250 to have them process the subordination agreement.

Actually, the second lender is charging my new primary lender and not me, but the new primary lender appears to be passing the buck to me and is adding this to my closing costs.

Is this legal? It looks like another scam by big banks to bleed money from consumers.

A: Here’s what you should keep in mind: Your second lender does not have to agree to a subordination request.

When you pay off your loan with your primary lender, the second lender steps up in the lien line and becomes your new primary lender. Your new first lender will not give you the loan you are requesting unless they have first dibs on your property in case you default in your payments to them. If your loan with the second lender has no loan balance and you have no need for that loan, you can simply cancel that account and avoid paying the fee.

For a fee of $250, your second lender has agreed to take its place behind your new primary lender.

The other reason you’re being charged is that you’re asking your second lender to prepare documentation that they otherwise would not have to prepare. Is the fee reasonable?

Are you being “bled to death” with refinance costs and fees? Perhaps. But it’s common for second lenders to charge a subordination fee and it’s even more common for the primary lender to pass that cost along to you along with all other costs associated with the loan process.

Given the fees that some lenders are charging, that $250 subordination fee doesn’t seem too high if you are able to keep the second loan you have, particularly if you could not get the rate you currently have on that loan anywhere else.

But in the end, you don’t have much choice – if you don’t pay up, there won’t be a subordination agreement and you won’t be able to refinance.

If it makes you feel any better, I paid a subordination fee of about the same amount when I refinanced my loan.

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7 Responses to Paying Subordination Fees In Mortgage Refinance

  1. says:

    I am refinancing my first mortgage nad keeping a 2nd mortgage for a equity line with a 2nd lender. my new lender is charging me a $250 fee for a subordination agreement which my 2nd lender is not charging for the agreement as a favor to me as a customer. Should the new lender be charging me $250 for this fee anyway?

  2. ST says:

    If your home equity line of credit lender is not charging you for a subordination fee, your new lender should not charge you that fee. However, you should be charged a fee to record the subordination document. If that fee in your state is $250, then you will have to pay that fee. But make sure you know what the fees are and what you are paying for.

  3. PK says:

    It’s nonsense, the second mortgage is already in second position behind the first before a refinance, so staying second shouldn’t cost $200, which is what my second note holder is charging to subordinate a 49k credit line. Paying filing fees is one thing, but in most counties that is less than $20. Just more profit is all this is.

  4. KDD says:

    My second mortgage lender says is charges a $200 fee to just process the subordination request….and that doesn’t guarantee they will even agree. They said i have to pay the fee regardless. This doesn’t seem right to me. My first mortgage company told me to get their consent to subordinate without an appraisal before I should apply for HARP on that first mortgage. I feel like I am getting the run around…after 3 hrs on the phone last night I am frustrated. Any advice?

  5. Mike says:

    Does anyone know if this subordination fee is deductible on Federal Income Tax?

  6. Mae C says:

    I, too, am in the process of refinancing my first mortgage through Home Affordable Refinance Program (HARP). My first contact with the lender was 07/25/16. Forty three (43) days later, after I provided my new lender all signed application documents, I was told that I was conditionally approved if I provide additional information including one (1) month worth of paystubs. Ten (10) days later, after providing him all the additional documentation he required of me, he was requiring me to pay $250.00 ($200.00 for a subordination agreement and $50.00 for an HOA Certificate). These charges were not on the Closing Costs Agreement that I signed. We even agreed that there are no down payments required. Is this lender legitimate? I have only spoken to him over the phone, and I have only been uploading signed documents on their website including a copy of my driver’s license and social security card. How do I know if I am not being scammed? How do we know if we could even trust this lender?

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