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What Is a Front-End Fee?

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum

A front-end fee is any type of fee that must be paid at the onset of a business deal, rather than allowing those fees to be assessed and become due at a later time. Fees of this type are common in a number of settings, including service contracts, deals with independent contractors, buying into mutual funds, and even putting together a mortgage deal between a lender and a borrower. The range of fees that must be paid on the front end will vary, depending on the nature of the fees, industry standards, and in come cases even laws and regulations that govern particular types of transactions.

The assessment of a front-end fee is common in the mortgage lending industry. This is true in situations involving direct interaction between a lender and applicant as well as scenarios in which a mortgage broker serves as an intermediary. With the former arrangement, the lender will normally bundle certain fees directly into the principal amount of the loan, effectively allowing the borrower to pay those off over time. Other fees, often having to do with services performed by the lender on behalf of the borrower, will be due up-front, and must be paid in full in order for the mortgage arrangement to go forward.

A front-end fee is any type of fee that must be paid at the onset of a business deal, rather than allowing those fees to be assessed and become due at a later time.
A front-end fee is any type of fee that must be paid at the onset of a business deal, rather than allowing those fees to be assessed and become due at a later time.

With a broker involved in the mortgage arrangement, the front-end fee may involve charges assessed by the broker and payable by the borrower. Typically, these are fees that help to offset the expenses that the broker incurs when attempting to help potential homebuyers find lenders willing to work with them. The charges are usually itemized but presented as a single front-end fee that the borrower pays directly to the broker.

The concept of a front-end fee is also common among investors who wish to participate in a mutual fund. Here, the mutual fund will set the amount of the fee based on the tasks required to arrange for the investor to buy into the fund. As the name implies, the investor will tender the amount of the fee to the mutual fund at the beginning of the relationship, rather than having the option to settle the fee at a later date.

There are other settings in which a front-end fee may be assessed. Independent contractors will sometimes require this type of fee before actually beginning to engage in tasks on behalf of a client, usually when there is some sort of advance preparation or research that must be done in order to perform those tasks. Depending on the terms and conditions that govern the contractual arrangement, the fee may be non-refundable, meaning that even if the client chooses to sever the relationship, the contractor does not have to return the front-end fee.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

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Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

Learn more...

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    • A front-end fee is any type of fee that must be paid at the onset of a business deal, rather than allowing those fees to be assessed and become due at a later time.
      By: Kirill Kedrinski
      A front-end fee is any type of fee that must be paid at the onset of a business deal, rather than allowing those fees to be assessed and become due at a later time.