what is an origination fee 
a mortgage origination fee is an upfront fee charged by a lender to process a new loan application the fee is compensation for executing the loan loan origination fees are quoted as a percentage of the total loan and they are generally between 0 5 and 1 of a mortgage loan in the united states sometimes referred to as discount fees or points particularly when they equal 1 of the amount borrowed origination fees pay for services such as processing underwriting and funding understanding origination feesan origination fee is similar to any commission based payment a lender would make 1 000 on a 100 000 loan or 2 000 on a 200 000 loan if the lender charged a 1 fee for originating the loan the origination fee represents payment for the lender s initial services it sometimes represents a higher percentage of the loan amount on smaller loans because a 50 000 loan can require the same amount of work for the lender as a 500 000 loan total mortgage fees from lenders can be compared using a mortgage calculator these fees are typically set in advance and they should not suddenly increase at closing they should be listed on the closing disclosure 1history of origination feeslenders often earned exorbitant origination fees and yield spread premiums ysps during the late 1990s to mid 2000s for selling the borrower a higher interest rate borrowers with marginal credit or unverifiable income were particularly targeted by predatory subprime lenders these lenders often charged origination fees as high as 4 or 5 of the loan amount and they made thousands of additional dollars in ysps the government passed new laws following the 2007 2008 financial crisis these laws limited how lenders could be compensated 2 public pressure provided an incentive for lenders to rein in the practices that had made them rich during the housing boom origination fees shrunk to an average of 1 or less a borrower is often better off paying a higher origination fee in exchange for a lower interest rate because the interest savings over time will exceed the origination fee 