Loan Origination Fee Definition
The loan origination fee definition is a charge from a lender to a borrower usually for mortgage loans. The origination fee is usually used to cover the cost of issuing the loan itself. The costs range from appraisal and title expenses to a credit check of the person trying to obtain the loan.
Loan Origination Fee Explained
An origination fee loan is normally a discount point (1%), but can range from a half (0.5%) to two point (2%). If it is used solely for cash it can even be deductible if the borrower is purchasing or amortizable if the borrower is refinancing a mortgage loan. A lender’s agreement often discloses an origination fee. You can negotiate it. It should be noted that it is usually higher in a subprime market due to the increased risk.
Loan Origination Fee Example
Tanner is looking to buy a house for $1 million. He goes to Money Bank and obtains a loan with a 1% origination fee. Tanner then uses this cash to buy the house. Tanner immediately owes the origination fee of $100,000 when he purchases the house. Note that Tanner will be able to deduct the fee on his taxes.
For more tips on how to improve cash flow, click here to access our 25 Ways to Improve Cash Flow whitepaper.