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Mortgage Closing Costs: Separating Fees, Prepayments, and Deposits

Cash due at closing combines several kinds of expense. Some amounts pay for services, some cover interest or other obligations in advance, and others seed an escrow account. Sorting those amounts by purpose makes estimates easier to compare and helps you identify services you can shop for without mistaking every difference for a lender fee.

The questions below use selected Consumer Financial Protection Bureau guidance, adapted and organized by Fynoptic. Source links and the dates displayed by those sources are provided at the end.

What costs come with taking out a mortgage?

There are several types of costs and fees you pay when taking out a mortgage and purchasing a home. Some of these costs are directly related to the mortgage and others are part of homebuying or homeownership. Consider the costs directly related to the mortgage when you’re shopping for a loan.

You pay for mortgage and homeownership fees either up-front when you first take out the mortgage, or over time by paying them with your monthly mortgage payments. When choosing a mortgage, it’s important to consider both possibilities. A mortgage with a lower monthly payment may be the result of paying more costs at or before closing, or a mortgage may have a higher monthly payment because the principal amount of the loan is higher.

Upfront costs. In addition to your down payment, there are several different kinds of costs you must pay at closing.

  • Origination and lender charges. These costs are charged by the lender for “originating,” or making you the loan. They are part of the price of borrowing money. Common charges are labeled origination fees, application fees, underwriting fees, processing fees, administrative fees, etc. Although the lender may itemize these costs differently, it’s the total amount that matters.
  • Points. Points are a charge you pay upfront to the lender to lower the interest rate on your loan. Points are part of the price of borrowing money and are calculated as a percentage of the loan amount. You can choose whether or not to pay points. Learn more about points.
  • Third-party closing costs. These are charges for third-party services that are required to get a mortgage, such as appraisals and title insurance. You can shop separately for some of these services.
  • Government fees. These fees may be required by your local government and charged in connection with the real estate transaction or mortgage. They generally will not vary based on who the lender is.
  • Prepaid expenses and deposits. These expenses may be associated with your loan or with homeownership. Typically, you need to pay the interest on your loan between the time you close and the end of that month. It’s also common to pay the first year’s homeowner’s insurance premium and make initial deposits into an escrow account to cover future homeowner’s insurance and property taxes.
  • Other homebuying expenses. These expenses may be associated with the purchase of a home but not required to get a mortgage. These may include home inspections, owners title insurance, or real estate agent fees.

Monthly costs. Your monthly payment will typically contain up to four elements:

  • Principal. This is the money you borrowed and have to pay back. This is part of the cost of buying your home, but not a cost of borrowing money.
  • Interest. This is the primary, but not the only, cost of borrowing money.
  • Mortgage insurance. This is an additional cost of borrowing money, typically required for borrowers who make a down payment of less than 20%.
  • Property taxes and homeowners’ insurance. These are costs of homeownership, not of borrowing money. They are usually bundled with your monthly payment and managed by the lender through an escrow account.

In addition, you may pay for condominium or homeowner’s association dues. These costs are usually paid separately from your monthly payment.

Learn more about these monthly costs.

Note, while property taxes and homeowners’ insurance are often paid with your mortgage, they’re really costs of homeownership. You would have to pay them with or without a mortgage. These costs are important in deciding how much you can afford. However, lenders don’t control these costs, so you shouldn’t make decisions about which lender to choose based on their estimates of these costs.

Learn more about loan costs.

What are mortgage origination services? What is an origination fee?

An origination fee is what the lender charges the borrower for making the mortgage loan. Mortgage origination services may include processing the application, underwriting and funding the loan, and other administrative services.

Origination fees are disclosed in your Loan Estimate. Origination fees generally cannot increase at closing, except under certain circumstances. The final charges are listed in section A of page 2 of your Closing Disclosure.

Note: You will not receive a Loan Estimate or Closing Disclosure if you are shopping for:

For these kinds of loans, you should receive Truth-in-Lending disclosures. If you are shopping for a reverse mortgage, you will also receive a Good Faith Estimate (GFE) and a HUD-1 Settlement Statement. Origination charges are listed in Block 1 on your Good Faith Estimate (GFE) and Line 801 of your HUD-1 settlement statement.

What are prepaid interest charges?

Prepaid interest charges are charges due at closing for any daily interest that accrues on your loan between the date you close on your mortgage loan and the period covered by your first monthly mortgage payment.

This amount is listed on Page 2, section F of your Loan Estimate and Page 2, section F of your Closing Disclosure. These charges may change between the time you receive your Loan Estimate and the Closing Disclosure.

Note: You will not receive a Loan Estimate or Closing Disclosure if you are shopping for:

For these kinds of loans, you should receive Truth-in-Lending disclosures. If you are shopping for a reverse mortgage, you will also receive a Good Faith Estimate (GFE) and a HUD-1 Settlement Statement. You can find your prepaid interest charges in Box 8 of your GFE and on Line 901 of your HUD-1 settlement statement.

What is an initial escrow deposit?

An initial escrow deposit is the amount that you will pay at closing to start your escrow account, if required by your lender.

This initial amount may be different from what you pay monthly to maintain the escrow account. This initial amount is listed in section G on page 2 of your Loan Estimate. This amount may change between your Loan Estimate and the time you receive your Closing Disclosure.

Note: You will not receive a Loan Estimate or Closing Disclosure if you are shopping for:

For these kinds of loans, you should receive Truth-in-Lending disclosures. If you are shopping for a reverse mortgage, you will also receive a Good Faith Estimate (GFE) and a HUD-1 or HUD-1A Settlement Statement. The initial escrow amount will be listed in Block 9 of your Good Faith Estimate (GFE) and in Line 1001 on Page 2 of your HUD-1 or on Page 1 of a HUD-1A settlement statements, and may change between your GFE and closing.

What are government recording charges for a mortgage?

Government recording charges are fees assessed by state and local government agencies for legally recording your deed, mortgage and documents related to your home loan.

Either a buyer or a seller may pay these fees. These charges are listed in section E on page 2 of your Loan Estimate (and section E on page 2 of your Closing Disclosure). The sum of these charges and certain other settlement services generally cannot increase by more than 10 percent in total at closing.

Note: You will not receive a Loan Estimate or Closing Disclosure if you are shopping for:

For these kinds of loans, you should receive Truth-in-Lending disclosures. If you are shopping for a reverse mortgage, you will also receive a Good Faith Estimate (GFE) and a HUD-1 or HUD-1A Settlement Statement. Government recording charges are listed in Blocks 7 and 8 of your GFE and Lines 1201-1205 of your HUD-1 or HUD-1A settlement statement.

What required mortgage closing services can I shop for?

To figure out which mortgage closing services you can shop for, you will need your Loan Estimate. You can shop for all of the services listed in section C of page 2 of your Loan Estimate.

See an interactive sample Loan Estimate form.

The lender must provide you with a written list of closing service providers when they give you the Loan Estimate. Closing services may also be known as “settlement services.” You may be able to use a service provider that is not on this list, as long as the lender agrees to work with that service provider.

Note: You will not receive a Loan Estimate or Closing Disclosure if you are shopping for:

For these kinds of loans, you should receive Truth-in-Lending disclosures. If you are shopping for a reverse mortgage, you will also receive a Good Faith Estimate (GFE) and a HUD-1 or HUD-1A Settlement Statement. On the GFE, services you can shop for (often, termite inspectors, etc.) are listed in Block 6 on page 2. In addition, you can also usually choose your own settlement agent and title services and insurance providers (Blocks 4 and 5. and homeowner’s insurance agent (Block 11)

Sources and further reading

The CFPB source passages are U.S. government work in the public domain. Fynoptic has selected, organized, and adapted the material for this guide, including corrections identified through the additional sources listed above. Sources accessed October 27, 2026. This use does not imply agency endorsement or affiliation.

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