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They say that the only thing's for certain a life or death and taxes.

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If you borrow money you could add interest and fees to that list.

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We just covered interest.

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There are a variety of fees you pay when getting a loan.

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The creation of a new loan is called originating alone the fees incurred during loan creation are called

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origination fees.

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There are some other fees that may be assessed over the life of the loan.

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You may even be assessed a fear penalty when you pay off the loan.

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Yes they can get you on the way in and on the way out.

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One of the origination fees is explicitly named an origination fee.

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It covers the bank's cost for making the loan.

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The fee is often calculated as a percent of the original balance of the loan.

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It often runs point 5 percent to 1 percent of the original balance.

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The fee may also be just a flat dollar amount not stated as a percent of the loan balance the fee is

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usually financed into the loan meaning it's added to the principal balance of the loan origination fees

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are common on term loans a commitment fee is like an origination fee for lines of credit since the principal

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balance of a term loan can vary wildly over the life of the loan.

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The fee is based on the commitment amount when you get a commercial real estate loan.

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The bank will likely require an appraisal to determine the value of the property being pledged as collateral.

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The bank will order the appraisal and just pass the cost along to the borrower a lender doesn't want

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to repossess collateral that has massive potential environmental liabilities those liabilities might

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also risk the financial health of the borrower.

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If there is the potential of an environmental issue the bank will require environmental testing.

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For example the property may currently be or once a been a convenience store with underground gas tanks.

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There are three levels of testing based on the risk.

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Phase 1 Phase 2 and an environmental impact statement.

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The testing costs are paid by the borrower late fees are assessed when the payment is late according

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to the loan agreement.

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In addition to the fee the interest rate of the loan may jump up to a much higher rate.

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This is called default interest so a late payment can trigger both fees and increased interest costs.

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The default interest rate will go down to the normal interest rate once the loan is no longer pass to

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it's fairly rare for a prepayment fee to be a flat dollar amount or percent over the whole life of the

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loan.

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What's more common for business loans are declining prepayment fees stated as a percent of the loans

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principal balance.

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For example if the loan is prepaid in the first year you would pay 3 percent.

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If it's the second year you pay 2 percent and if it's prepaid in the third year then you only pay 1

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percent.

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With that structure you won't pay a prepayment fee after that.

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Another example is one that starts at 5 percent the first year and goes down 1 percent per year over

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5 years here's a tip for avoiding a prepayment penalty.

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See if the lender will waive it.

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If you refinance with them rather than getting a loan somewhere else.

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Companies usually prepay a loan subject to a penalty if current rates are significantly lower than their

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old rate.

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You can calculate if the cost savings of a lower rate would offset the prepayment fee of the current

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loan and any origination fees of a loan.

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You don't have to fully repay the loan though to trigger a prepayment penalty.

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The agreement may say that repayment of 20 percent of the original balance may trigger a prepayment

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penalty for the portion of the principal being repaid.

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Make hole or yield maintenance prepayment fees are much trickier.

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They are calculated as the difference between the interest that a lender would earn on the remaining

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life of the loan at the original loan rate and what they would earn based on current loan rates.

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For example the penalty is how much in today's dollars the bank would lose if you paid off your loan

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at 7 percent and they replaced it with a 5 percent loan.

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They would earn a lot less interest over the remaining life of your loan these fees go up as current

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interest rates go down negating the financial incentive to refinance when rates go down the amount of

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these fees is a complex calculation that's usually beyond the sophistication of the borrower.

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The borrower needs to ask the lender what the fee would be if they prepared the loan.

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These fees are usually included in loan agreements for long term fixed rate loans with national or regional

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banks.

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These banks are usually big enough to handle the sophistication of these penalties and work with larger

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more sophisticated companies.

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They also make loans more frequently that are big enough to place an interest rate swap on for the fixed

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rate loan.

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Banks funding sources are usually variable rate so banks use interest rate swaps to swap the fixed rate

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payments from the loan into variable rate payments.

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This reduces the bank's interest rate risk.