Origination fee
A lender fee charged at the time of loan origination, typically expressed as a percentage of the loan principal (commonly 0.5% to 2.0% on mortgages, 1% to 8% on personal loans). Included in APR but not in the headline interest rate.
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Origination fees are the lender's compensation for the work of processing a loan — underwriting, document preparation, funding. For mortgages, origination fees typically range from 0.5% to 1.0% of the loan principal in 2026, sometimes higher on certain product types or for borrowers with weaker profiles. For personal loans, origination fees can range from 0% (some lenders advertise zero-fee personal loans) to 8% or more on subprime profiles. The origination fee is generally deducted from the loan proceeds at closing — a $20,000 personal loan with a 5% origination fee disburses $19,000 to the borrower, with the $1,000 fee going to the lender.
The economic significance of origination fees is that they are included in APR by federal disclosure requirements (Regulation Z) but not in the headline interest rate. Two loans with the same rate but different origination fees have different APRs, with the higher-fee loan being more expensive. Comparing loans by rate alone misses the fee differential; comparing by APR captures it. For example, a $20,000 personal loan at 10% rate with no origination fee has an APR of approximately 10%; the same loan at 9% rate with a 5% origination fee has an APR of approximately 11%. The 9% rate loan looks cheaper at first glance but is actually more expensive once the fee is included.
Origination fees on mortgages are sometimes presented as "discount points" or "origination points" with different implications. Discount points are an explicit prepayment of interest — paying 1% of the loan amount upfront in exchange for a 0.25% (typical) reduction in the rate. Origination points are pure compensation to the lender without a corresponding rate reduction. The discount point trade-off has a clear break-even calculation: divide the upfront cost by the monthly payment reduction to get how many months you need to hold the loan to recoup the points. Most homeowners do not hold mortgages long enough to recoup discount points, which is why points generally do not pencil out for borrowers planning to move or refinance within 5–7 years.
On personal loans, the strategic implication is that the origination fee must be factored into the effective borrowing rate. A 12% APR personal loan with no origination fee is structurally different from a 10% rate loan with a 5% origination fee disbursed over a 5-year term, even though their APRs may be similar. The cash math matters when comparing offers — the borrower receives less cash up front with the higher origination fee loan, which can matter for the use case (debt consolidation, home improvement, medical expenses). Always compare loans by APR and by cash received, not by headline rate alone. The methodology pillar in the loans hub covers personal loan shopping in detail.
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- APR (Annual Percentage Rate) APR is the annualized cost of borrowing, expressed as a percentage, that includes both the nominal interest rate and certain mandatory fees. For credit cards, it is essentially the interest rate; for installment loans, it bundles in origination fees and points.
- Mortgage A loan secured by real estate, used to finance the purchase or refinance of a home. The largest single loan most US households will ever take, typically with a 15- or 30-year amortization, fixed or adjustable rate, and various government-backed or conventional structures.
- Refinance Replacing an existing loan with a new one — typically to lower the rate, change the term, switch from variable to fixed rate, or extract equity (cash-out refinance). Subject to closing costs that must be recouped through the rate savings to make the refi worthwhile.
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