“Fees” is a common term when discussing a mortgage, because banks typically charge specific fees for certain procedures or actions related to the loan. Thus, we may hear about fees for opening a mortgage, for early repayment, for subrogation, for cancellation, and so on. That’s why it’s important to thoroughly research all the fees that may apply while the mortgage is active before signing the agreement.

In any case, the best-known of these is the mortgage origination fee, because not only is it the first one you’re likely to encounter, but it can also have an impact on the financing of your new home. That’s why today at CULMIA we want to tell you about its characteristics, so you have all the information you need and aren’t caught off guard.

The Origin of the Mortgage Origination Fee

You’ve probably already gotten an idea of the concept behind a mortgage origination fee just from its name. It’s simply the percentage of the requested mortgage amount that some financial institutions and banks may charge when they approve the loan.

Prior to 2019, there were various fees associated with applying for and processing a mortgage, as the bank carried out several steps, such as a creditworthiness and expense assessment, closing procedures, and even the initial account opening. Consequently, it was common for the bank to charge a fee for each of these tasks, until the new Mortgage Law (Law 5/2019 of March 15)stipulated that all of these fees must be consolidated into a single mortgage origination fee.

Specifically, Article 14.4 of the aforementioned regulation states:

“If an origination fee is agreed upon, it shall be charged only once and shall cover all costs associated with the review, processing, or approval of the loan, as well as any other similar costs inherent to the lender’s business arising from the granting of the loan. In the case of loans denominated in foreign currencies, the origination fee shall also include any currency conversion fee corresponding to the initial disbursement of the loan.”

In other words, there can now be only one fee associated with the mortgage origination process.

What is the most common amount for a mortgage origination fee?

Each financial institution or bank decides whether to charge an origination fee for granting a mortgage, since it is not an essential requirement for finalizing the loan agreement. So this is something you should consider when evaluating different mortgage offers, since if you take out a loan that includes one, it will inevitably have a small impact on the financing of your new home.

We say it will be small because the mortgage origination fee typically ranges from 0.1% to 2% of the principal amount borrowed, with 0.5% to 1% being the most common. Therefore, if a mortgage is valued at 100,000 euros, the lender may require the borrower to pay, at the time the agreement is signed, an amount ranging from 100 to 2,000 euros (though it’s more likely to be between 500 and 1,000 euros).

Furthermore, as we have already noted, this mortgage origination fee will cover all costs related to the procedures necessary to secure the mortgage: the personalized assessment of expenses and risk, as well as the steps the lending institution must take to finalize the mortgage and put it into effect.

The Legality of Mortgage Origination Fees and the Current Situation

Despite everything that has been said, and even though the mortgage origination fee is provided for under the new Mortgage Law, the reality is that it has recently been called into question following various complaints filed by customers who used this service. The reason? For some of them, there are cases in which it could be considered unfair.

Consequently, in 2021, the Supreme Court referred a question for a preliminary ruling to the Court of Justice of the European Union (CJEU) to clarify whether current case law in Spain is contrary to European Union law. As a result, on March 16, 2023, the CJEU issued a ruling establishing that this commission is not part of the main subject matter of the contract and may therefore be subject to review for abuse.

What does this mean? It means that, if we consider this mortgage origination fee to be in violation of the restrictions on unfair terms imposed by European Directive 93/13, we can file a claim at any time, since there is no specific deadline for doing so after the loan is finalized.

When should you file a claim?

The key distinction here is the transparency of the clause imposed by the bank. For it to be considered valid, the judge must determine whether the contract’s terms are clear and understandable, so that the contracting party was able to assess in advance the impact that the mortgage origination fee would have on the financing of the home.

In fact, following the aforementioned CJEU ruling, the Supreme Court applied its criteria and issued its first ruling on the matter on May 29, 2023. In that ruling, it made clear that there is no single standard, and that each case must be assessed individually to determine whether the clause is valid or not. Therefore, it is up to the consumer to subjectively assess whether the clause is unfair and decide whether to file a claim so that the courts can make a ruling.

How do I file a claim?

If we believe that the mortgage origination fee imposed on us by our bank is unfair, the best course of action is to file a claim directly with the bank for a refund of the amount we paid at the time. If the bank does not respond or rejects the request, we should consult a lawyer to initiate the appropriate legal proceedings.

If it comes to this, it is important to note that the aforementioned legal proceedings may drag on for months or even years before a resolution is reached. Furthermore, the plaintiff has the right to claim interest on the amount paid from the date of payment, as stipulated in Article 1303 of the Civil Code.

The Importance of Understanding Mortgage Origination Fees

In short, although mortgage origination fees are becoming less and less common in our country, it is important to ask the financial institution or bank about them. Before signing, the lender must clarify whether or not it includes this fee, and if so, it must justify its application (based on the services provided) and disclose it transparently so that we are aware of both its details and the total cost to us.

We recommend:

• Guide to Buying a Home Without a Mortgage: Alternative Financing Strategies
• Mortgage Interest Rates: How They’re Determined and Why