What is Loan Origination?
"Loan origination" is the term for the entire process of a borrower entering a loan agreement with a lender. This blanket term covers every single step from the borrower filling out a loan application, through the lender processing that application, all the way to the disbursal of funds to the borrower or declination of the loan application.
What are Loan Origination fees?
An origination fee is the sum of money charged by a lender upon entering a loan agreement for the cost of processing the loan. Origination fees are typically a small percentage of the loan amount (usually 0.5 to 1% on mortgages based in the US for example) that is not dissimilar to any commission-based payment.
Origination fees tend to be lower for high-value loans and higher for smaller loan amounts. Since it is the primary way for lenders to be compensated for their loan services, negotiating origination fees, while possible, usually means the borrower must concede something in return such as agreeing to higher interest rates.
How do You Calculate Loan Origination Fees?
While 1% is typically the standard loan origination fee, It is basically a percentage-based dollar amount included in the calculation of the annual percentage rate (APR).
Are Loan Origination Fees Negotiable?
Simply put, yes. As stated above, loan origination fees are absolutely negotiable. Some lenders even broker loan agreements with NO origination fee. In order to qualify, however, a borrower must usually have an immaculate borrowing history and an impressive credit score. In general, loans with no or very low origination fees tend to come with the compromise of higher interest rates, which work out to be more costly in the long run.