Origination fee
Encyclopedia
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 2% on a $200,000 loan is $4,000.
Discount points are used to buy down the interest rate
s, temporarily or permanently. Origination fees and discount points are both items listed under lender-charges on the HUD-1 Settlement Statement
.
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
, broker
Broker
A broker is a party that arranges transactions between a buyer and a seller, and gets a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal...
or other company providing services handling the processing associated with taking out a loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
.
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
Prime rate
Prime rate or prime lending rate is a term applied in many countries to a reference interest rate used by banks. The term originally indicated the rate of interest at which banks lent to favored customers, i.e., those with high credibility, though this is no longer always the case...
or the subprime market. For example, an origination fee of 2% on a $200,000 loan is $4,000.
Discount points are used to buy down the interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
s, temporarily or permanently. Origination fees and discount points are both items listed under lender-charges on the HUD-1 Settlement Statement
Hud-1 settlement statement
The HUD-1 Settlement Statement is a standard form in use in the United States of America which is used to itemize services and fees charged to the borrower by the lender or broker when applying for a loan for the purpose of purchasing or refinancing real estate....
.