Wednesday, December 3, 2008

What Is an Origination Fee?

Q: What is an origination fee?

A: The origination fee is pure profit for the mortgage broker. Part of it may go to the mortgage broker's employer, but it is still 100% profit for the mortgage company.

Sometimes a mortgage lender will tell you that the origination fee is being used to buy down the rate, meaning it's being used to secure a lower interest rate by making a one-time up-front payment. That is not correct. Loan discount fees (sometimes referred to as "paying points"), and not the origination fee, are used to buy down the interest rate. It's important to have the fees listed on the correct lines on the Good Faith Estimate and the final settlement statement in order to be in compliance with the Real Estate Settlement Procedures Act (RESPA).

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