What is "origination fee"

n. a fee charged to a borrower (especially for a mortgage loan) to cover the costs of initiating the loan

An origination fee, or activation fee, is a payment associated with the establishment of an account with a bank, broker or other company providing services handling the processing associated with taking out a loan.

An activation fee is typically a set amount for any account. However, an origination fee usually varies from 0.5% (half a point) to 2% (two points) of a given loan amount, depending on whether the loan was originated in the prime or the subprime market. For example, an origination fee of 3% on a £200,000 loan is £6,000. In the United States origination fees are allowed for mortgages but are illegal for other loans. The FTC indicates origination fees are scams.

Discount points are used to buy down the interest rates, temporarily or permanently. Origination fees and discount points are both items listed under lender-charges on the HUD-1 Settlement Statement. Regulation Z was enacted to protect buyers from abusive lending practicing with regards to origination fees and origination fees for mortgages can not be deducted.