Origination Fee
An upfront fee charged by a lender for processing and underwriting a new loan application.
What is Origination Fee?
An origination fee is a one-time upfront charge paid to a lender at loan closing in exchange for evaluating, processing, and funding a loan. Origination fees are typically expressed as a percentage of the loan amount—commonly 0.5–1% for mortgages—or as a flat dollar amount for personal and auto loans. The fee covers the lender's administrative costs including credit checks, document preparation, underwriting review, and loan setup. Under the Truth in Lending Act (TILA), origination fees must be disclosed and are included in the APR calculation, giving borrowers a truer picture of total loan cost. Origination fees are different from discount points: points are prepaid interest paid to reduce the interest rate, while origination fees are compensation for the lender's services. Borrowers can sometimes negotiate origination fees or choose between a higher rate with lower upfront fees versus a lower rate with higher fees.
Example
A borrower closing a $350,000 mortgage with a 0.75% origination fee pays $2,625 at closing. This cost is included in the APR, which is slightly higher than the stated interest rate. The borrower could have chosen a loan with no origination fee at a 0.125% higher interest rate, which would have cost more over the full loan term.
Source: Consumer Financial Protection Bureau — Origination Charges