An origination fee (sometimes referred to as origination “point”) is a fee paid to a lender to process a loan application. The borrower agrees to pay this upfront fee to the lender for setting up the loan or mortgage. The fee is typically a percentage of the loan amount, and typically the fee amount is based on the type of loan and amount of costs associated with the loan’s preparation.
Origination fees are often negotiable. A mortgage, for example, may 0.5%-1.0% include origination fees along with other closing costs. Customers may be able to negotiate for lower origination fees for larger loan amounts, when lenders are seeking to earn loan business. While mortgage origination fees grew prior to the subprime mortgage crisis of 2007-08, the government has enacted legislation since limiting loan origination fees (See § 206.31).
[Last updated in July of 2020 by the Wex Definitions Team]