At the time of providing a mortgage loan, the lender has to determine the qualification of the borrower. As the lender is taking a calculated risk of lending money to a person, it is very important for the lender to determine the credit worthiness of the borrower. In addition, the lender also charges different fees from the borrower so that he can earn money from the lending process. Mortgage origination fees are one of the several fees that the lender charges. These loan origination fees are not refundable, and these are treated as prepayment fees. Moreover, the origination fee is different from the broker fee. It is the amount that is due to the broker for taking the loan, whereas the broker fee is the commission paid to the broker for purchasing real estate.
A lender charges a mortgage origination fee for processing the loan. Generally, the mortgage origination fee amounts between 0.5% to 1% of the total lending amount. However, there can be other mortgage origination fees for prepaid interest points. Prepaid interest points are given to reduce the loan interest rate. One prepaid point generally equals 1% of the total loan amount, but one can buy the points in increments starting from 0.125%. Generally, the origination fee covers a large number of things which is mentioned in the Loan Estimate. These costs can include loan processing costs, scheduling costs, documentation, the cost of filling out necessary paperwork along with costs of underwriting the loan.
Mortgage origination fees are determined because every lender has to incur some cost to provide loans. This can be the overhead for their business or payments to underwriters, or scheduling appraisals. These fees help a lender generate an adequate level of income so that they can provide further loans to other people. This is a form of cash cycle that the lender uses to ensure a continuous cash flow for himself. On the other hand, mortgage origination fees also help ensure adequate liquidity within the real estate sector, which further leads to the growth and development of the sector. However, all the lenders do not charge origination fees. The downside is that if a lender is not charging mortgage origination fees, then there is a high chance that he is compensating the same through higher interest rates. This can cost more in the long run.
