An origination fee is a form of processing fee you pay to a lender to acquire a loan. It is most often associated with an initial mortgage or a refinance. The fee is typically based on a percentage of the loan amount, so to calculate it, multiply that amount times the fee percentage.
Origination Fee Example
Origination fees vary but are often between 0.5 and 2 percent, according to Quicken Loans. On a $150,000 home loan with a 1 percent fee, you would pay $1,500 for the origination. On a $250,000 loan, the fee is $250,000 times 1 percent, which equals $2,500.
Paying the Fees
You have a few basic options to pay your origination fees. A common approach is to have this fee worked into the total cost of your loan package, which you repay over time according to your amortization schedule. This approach minimizes out-of-pocket cash requirements. Alternatively, you can pay the fee at the time of closing, thus reducing the amount you have to repay on the loan.
An origination fee covers a few common loan origination services. It is intended to cover the lender's time in reviewing an application and processing your loan. Administration, underwriting and funding activities are other origination services lumped into an origination fee.
Lenders may also label origination fees as "lender fees" or "processing fees." Ask questions about good faith estimate charges to avoid surprise costs.
Not all loans have origination fees. In a competitive market or when you have excellent credit as a borrower, lenders may waive such processing fees to get your business. Lenders are required to disclose all loan fees in a good faith estimate before settlement. They can't increase fees under most circumstances after that point, according to the Consumer Financial Protection Bureau. If you have options to obtain a loan, you can negotiate with the lender to get origination fees waived. In some cases, lenders drop origination fees in lieu of a slightly higher loan interest rate.