DEFINITION of 'Servicing Fee'

A percentage of each mortgage payment made by a borrower to a mortgage servicer as compensation for keeping a record of payments, collecting and making escrow payments, passing principal and interest payments along to the note holder, etc. Servicing fees generally range from 0.25-0.5% of the remaining principal balance of the mortgage each month.

BREAKING DOWN 'Servicing Fee'

In addition to earning the actual servicing fee, in most cases, mortgage servicers also benefit from being able to invest and earn interest on a borrower's escrow payments as they are collected until they are paid out to taxing authorities, insurance companies, etc. Mortgage servicing rights (MSR) trade in the secondary market much like mortgage-backed securities.

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