Loan Origination Fee Definition
A loan origination fee 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.
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