Origination Fee
An origination fee is a charge by a lender to process a new loan application. It covers the cost of underwriting, administrative work, and loan setup. It is expressed as a percentage of the loan amount (typically 0.5–1%) or as a flat dollar amount.
$200,000 loan at 0.75% origination = $1,500 fee due at closing.
Origination fees are part of closing costs on mortgages and personal loans. On a $300,000 mortgage, a 1% origination fee = $3,000. Some lenders advertise "no origination fee" loans but compensate with a higher interest rate — there is no free lunch.
On personal loans, origination fees are often deducted from the loan proceeds. If you borrow $10,000 with a 4% fee, you receive $9,600 but owe $10,000. The effective APR is therefore higher than the stated rate.
Regulations require lenders to disclose all fees in the Loan Estimate (within 3 business days of application) and the Closing Disclosure (3 days before closing). Review these carefully and compare total loan costs — not just rates — across lenders.
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- Closing Costs
- Closing costs are fees paid at the end of a real estate transaction to complete the mortgage. They typically range from 2–5% of the loan amount and include lender fees, title insurance, appraisal, and prepaid items.
- Mortgage Points (Discount Points)
- Mortgage points are upfront fees paid to a lender to reduce (buy down) the interest rate on a loan. One point equals 1% of the loan amount. Paying points makes sense if you plan to stay in the home long enough to recoup the upfront cost.
- Refinancing
- Refinancing replaces an existing loan with a new one, typically at a lower interest rate, different term, or both. The goal is usually to reduce monthly payments or total interest paid.