What Is a Mortgage Origination Fee?

Many lenders charge mortgage origination fees, but they can be negotiated by shopping around.
Linda Bell
Hal M. Bundrick, CFP®
By Hal M. Bundrick, CFP® and  Linda Bell 
Reviewed by Michelle Blackford

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A mortgage origination fee is any fee that adds to the profit a lender can make on a loan.

Mortgage lenders are going to charge fees one way or another; that's why it's important to shop for a loan from more than one mortgage provider. But it's a bit of a shell game: Are the fees included in the interest rate, as an extra charge over on the fee sheet — or both?

And it’s not as simple as being just on the lookout for something called an “origination fee.” There are dozens of names for these bolted-on costs that can show up in your Loan Estimate as part of the loan’s closing costs.

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How mortgage lenders make money

A loan's interest rate already comes with some built-in markup for the lender. To help make their interest rates appear more competitive, some mortgage companies will charge additional lender fees instead of profiting only from the rate.

It’s one way of framing the [loan] product to make it appear more attractive than it is.
Casey Fleming, Mortgage advisor

"It's one way of framing the [loan] product to make it appear more attractive than it is," says Casey Fleming, a mortgage advisor who works in Silicon Valley.

When comparison shopping lenders, the key is identifying the fees that are valid, perhaps even negotiable, and the fees that are tacked onto a loan to pump up a lender’s profit.

How to spot junk fees

You can find these fees by reviewing the Loan Estimate that lenders are legally bound to provide you after applying for a loan. It’s just three pages long, but the section we’ll focus on is on the left-hand side of page two.

Look for anything that’s listed in Section A, Origination Charges, of the Loan Estimate beyond the discount points you can buy to lower your interest rate. This is where we’ll find the “junk” fees — the add-ons a lender uses to make more money.

"Those are the fees like origination fee, administration fee, underwriting fee, processing fee, document preparation fee, appraisal review fee — all of these kinds of fees," says Carolyn Warren, a mortgage broker in Kirkland, Washington. "Some lenders like to split out their fees into three or four categories so that no one fee looks very high."

Warren says lenders think that keeping fees under $1,000 may seem palatable enough that borrowers won't object to them, especially when they appear legitimate.

But that doesn’t mean the fees can’t be scrutinized or that you, as a borrower, should feel uncomfortable about asking to have them removed.

All 'origination charges' are negotiable

Remember, any fee in Section A “Origination Charges” is negotiable and part of the lender’s profit strategy. And the larger the loan you're seeking, the more leverage you have to haggle fees — origination, junk or otherwise.

You can even start negotiations before you get an official Loan Estimate. To do that, ask each lender you’re considering: "If we proceed, what are all of the ‘origination charges’ that I will find listed on the Loan Estimate under Loan Costs, Item A?" Use those exact words and get their response in writing.

"When enough people reject overpriced loans and junk fees, then they'll go away,” Warren says. “As long as they can get away with it, [lenders are] going to do it."

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Frequently asked questions

Yes, all mortgage origination fees are negotiable, so don't be afraid to discuss them with your mortgage lender. The higher the loan amount, the more leverage you may have to haggle fees.

Yes, loan origination fees are one component of your mortgage closing costs. Home buyers pay the origination fee, which is typically about 0.5% of the amount being borrowed. These fees are charged by the lender for preparing your mortgage loan.

Mortgage points, also known as discount points, are one type of origination fee you might see on your loan offer. Discount points are an optional way to reduce your mortgage rate by paying more upfront.

The mortgage origination process includes all the steps a borrower takes when trying to obtain a home loan from a lender, beginning with the loan application and ending with a mortgage loan closing.

The buyer pays the origination fee as part of their closing costs. You can try to bring down this cost by looking for a lender that offers a low origination fee, but bear in mind that lower fees may come with higher interest rates.

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