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Origination Fee
Definition
An origination fee is a charge by a lender for processing and underwriting a new loan, typically 0.5-1% of the loan amount.
Explanation
The origination fee covers the lender's cost of evaluating, processing, and approving your loan application. It includes underwriting, documentation, and administrative expenses. This fee is part of your closing costs and is included in the APR calculation.
Some lenders offer no-fee loans but offset the cost with higher interest rates. Always compare both fees and rates when shopping for a loan.
Example
A 1% origination fee on a $300,000 mortgage costs $3,000. A no-fee loan might offer a 6.5% rate instead of 6%, so calculate the trade-off.