The Keys to Mortgage Origination Fees
You’ve applied for your mortgage, obtained your Good Faith Estimate and noticed something called a “mortgage origination fee.” If you have questions about what that is, why lenders charge it and what your options are, read on.
· What is a mortgage origination fee?
Let’s start with what “origination” means. When you apply for a mortgage, your lender needs to take many steps and handle lots of paperwork. All of this effort is what it takes to create or “originate” your mortgage.
To compensate your lender for this work, it will charge an “origination fee,” which is a percentage of the amount you’re borrowing. The more you borrow, the larger the origination fee.
· How much will you pay for your origination fee?
Typically, a mortgage origination fee is one percent of the total loan amount. So if you are borrowing $250,000, your fee would be $2,500.
· Can you negotiate a lower origination fee?
Depending on the mortgage lender, negotiation of this fee possible in many cases. For example, a lender may offer to lower your origination fee in exchange for a higher interest rate. If you plan to live in your home for a long time, it may make more sense to pay a higher origination fee instead of a higher rate. That way, the total cost of your mortgage will be lower over the life of the loan.
· When do you pay the origination fee?
Generally, you’ll pay this fee at closing, along with your other closing costs.
· Can you finance the origination fee?
Generally not, if it’s a new mortgage. The exception is if your refinancing an existing mortgage. In that case, you may be able to finance your origination fee, instead of paying it up front.
· Is the fee tax-deductible?
If the home you’re buying will be your primary residence, the answer is generally yes. Ask your tax advisor to be sure.