What Is an Origination Fee

In terms of home buying and selling, an origination fee (which is also called by others as a discount fee) is the money that a bank or a lending institution charges you to complete your loan transaction. This fee can cover various costs, including administrative, underwriting, and processing fees, as well as discount points and other fees charged by a broker.

Like other mortgage terms, this type of fee can be negotiable. However, getting favorable terms for it usually involves conceding something else to the lender. For example, you can accept a higher interest rate to lower it. This way, the lender will be able to earn commission from the yield spread premium, rather than the origination fee.

Based on the interest rate that you have agreed for your mortgage, your lender may also offer you a credit that you can use at closing towards your origination fee and other expenses related to the real estate transactions that you are engaged in, such as title, appraisal, and recording fees.

However, you can only close a favorable negotiation with your lender if you have a good credit history and a verifiable income. And, you should also remember that paying higher interest rates will cause interest savings to exceed the origination fee at the end of the loan term. So, it is also good to consider to just pay a higher origination fee for a lower interest rate.

Go back to the glossary