Origination fees and points, also known as discount points (though technically not the same) are tied to the rate you are being charged.
Origination Points/Fees
Origination points and discount points are money you pay upfront to lower the rate. So technically a lender (bank mortgage banker or broker) will offer you one rate if you pay nothing upfront (zero points) and a lower rate if you pay something upfront (1 point) and an even lower rate if you pay even more upfront (2 or 3 points).
What is it? An origination point, or 1 point, is 1% of the loan amount being borrowed NOT the price of the home.
Going the other way, there are also ZERO cost loans where the lender pays all your closing costs by giving you a higher than the market rate.
So depending on your loan amount, this could be a small or a significant difference in payment. There are other fees that affect the cost of the loan that is normally expressed as an APR (annual percentage rate).
Origination fees can also include processing, underwriting, funding fees. These they will tell you are to cover the cost of doing business separate from the “pushing down” of the rate.
Whether all lenders charge origination: The loan type (FHA, VA, FANNIE MAE) and loan size ($50K versus 400K) dictates whether they charge or not. For example, we never charge origination on FHA loans and rarely on VA loans. On FANNIE MAE loans it’s up to the borrower’s budget, time in the home and available cash that will determine which option they will choose.
The best way to determine if you are being overcharged on origination fees is to shop around, ask a few lenders for the IFW (initial fee worksheet) to determine if the rate justifies the points.
4 things to ask any lender before signing on the dotted line:
- What Rate do you offer today and how many points and fees go with that rate?
- When do you lock in the rate (at application, at the contract, at approval, etc)?
- Do you offer a float down where if the rate goes down AFTER I lock in you give me the lower rate?
- Do you charge a fee to lock-in?
About Athena Paquette
If you have questions about origination fees, you can contact Athena Paquette Mortgage Consulting for more detailed information. As a mortgage broker, Athena has consulted many clients over the years with mortgage and home advice.