An origination fee is a payment associated with the establishment of an account with a

bank A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Becau ...

broker A broker is a person or firm who arranges transactions between a buyer and a seller for 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. Neither role should be con ...

or other company providing services handling the processing associated with taking out a

loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that ...

. An origination fee is typically a set amount for any account. However, an origination fee usually varies from 1.0% to 5.0% of a given loan amount, depending on whether the loan was originated in the

prime A prime number (or a prime) is a natural number greater than 1 that is not a product of two smaller natural numbers. A natural number greater than 1 that is not prime is called a composite number. For example, 5 is prime because the only way ...

or the

subprime In finance, subprime lending (also referred to as near-prime, subpar, non-prime, and second-chance lending) is the provision of loans to people in the United States who may have difficulty maintaining the repayment schedule. Historically, subpr ...

market. For example, an origination fee of 10% on a $10,000 loan is $1,000. Discount points are used to buy down the

interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, t ...

s, temporarily or permanently. Origination fees and discount points are both items listed under lender-charges on the

HUD-1 Settlement Statement The HUD-1 Settlement Statement is a standardized mortgage lending form in use in the United States of America on which creditors or their closing agents itemize all charges imposed on buyers and sellers in consumer credit mortgage transactions. Th ...

. Regulation Z was enacted to protect buyers from abusive lending practicing with regards to origination fees and origination fees for mortgages can not be deducted.

Notes

Banking {{Econ-stub