A loan fee recapture clause is commonly included in commercial real estate, bridge loans, or specialized mortgage agreements. It allows lenders to recover certain upfront fees like origination fees, underwriting fees, or discount points if the borrower repays the loan early—typically within a recapture period ranging from 6 to 36 months.
When you close on a loan, you often pay fees upfront to cover the lender’s costs and expected profit. These can include:
- Origination Fee: Charged as a percentage of the loan amount to process the loan.
- Discount Points: Paid upfront to lower the loan’s interest rate over time.
- Underwriting Fees: For assessing credit risk and loan approval.
If you pay off or refinance the loan during the recapture period, the lender can reclaim some or all of these fees by adding them to your payoff balance. For example, if you refinance within 18 months and paid a $4,000 origination fee, the lender might require you to repay that fee proportionally or in full.
While loan fee recapture clauses are less common in standard residential mortgages due to consumer protection laws, they’re still prevalent in commercial loans and certain large or specialty mortgages. Borrowers considering refinancing or selling property within a few years should carefully review their loan agreements for these clauses.
Tips for Borrowers:
- Read loan documents thoroughly and look for terms like “recapture” or “clawback”.
- Ask your lender directly about any fees owed if you refinance or pay off early.
- Consider negotiating the removal or reduction of the recapture period.
- Calculate whether paying discount points is worthwhile given the potential recapture.
- Consult with a financial advisor or real estate attorney for complex loans.
Common Confusion: A loan fee recapture clause differs from a prepayment penalty. A recapture clause takes back upfront fees you have already paid if you pay off early, while a prepayment penalty is an additional charge on top of your payoff amount. For more on prepayment penalties, see FinHelp’s Prepayment Penalty guide.
Understanding loan fee recapture clauses can help you avoid unexpected costs when refinancing or selling property early. For more on related topics, visit FinHelp’s Loan Origination Fee Cap entry.
Authoritative Resource: IRS guidance does not directly cover fee recapture clauses, but the Consumer Financial Protection Bureau provides useful insights on loan costs and early payoff rights.
Sources:
- Investopedia on loan origination fees
- Investopedia on prepayment penalties
