Origination Points: Meaning, Examples in Mortgages

Origination points are fees charged by mortgage lenders to cover the costs of processing a loan application. The exact amount of origination points will vary depending on the lender, the type of loan, and the borrower's credit score.

In general, origination points are expressed as a percentage of the loan amount. For example, a loan with a 2% origination fee would cost the borrower $2,000 on a $100,000 loan.

Origination points are typically paid at closing, along with other closing costs such as title insurance and appraisal fees. However, some lenders may offer to roll origination points into the loan amount, which would increase the borrower's monthly payments.

It's important to compare origination points from different lenders before choosing a mortgage. While a lender with a lower origination fee may seem like a better deal, it's important to consider the total cost of the loan, including the interest rate and other fees.

In some cases, it may be possible to negotiate with a lender to lower the origination fee. However, lenders are not always willing to negotiate, so it's important to do your research before you start shopping for a mortgage.

Origination points are just one of many fees that borrowers should be aware of when shopping for a mortgage. Other fees to consider include:

• Loan origination fee: This is a fee charged by the lender to cover the costs of processing the loan application.
• Discount points: This is a fee paid to the lender in exchange for a lower interest rate.
• Title insurance: This is a fee paid to protect the lender's interest in the property in case of a title dispute.
• Appraisal fee: This is a fee paid to an appraiser to determine the value of the property.
• Closing costs: This is a general term for all of the fees associated with closing a loan, including origination points, discount points, title insurance, appraisal fees, and other miscellaneous fees.

It's important to understand all of the fees associated with a mortgage before you sign on the dotted line. By doing your research, you can avoid surprises and get the best possible deal on your loan.

Here are some examples of how origination points can affect the cost of a mortgage:

• A loan with a 2% origination fee and a 4% interest rate would cost the borrower $2,000 in origination points and $4,000 in interest over the life of the loan.
• A loan with a 1% origination fee and a 5% interest rate would cost the borrower $1,000 in origination points and $5,000 in interest over the life of the loan.

As you can see, the amount of origination points can have a significant impact on the total cost of a mortgage. It's important to compare origination points from different lenders before choosing a mortgage.