Origination Fee.
In plain English
An origination fee is what a lender charges to set up a loan, covering the work of processing, underwriting, and funding it. It is common on mortgages, personal loans, and student loans, and it is usually a percentage of the loan amount, often around 1 percent. The fee can be paid upfront or rolled into the loan, and it is a big reason a loan's APR is higher than its stated interest rate. Because it is often negotiable, it is worth asking about and comparing across lenders.
01Why it matters
Origination fees can add hundreds or thousands to a loan and are a major reason APR beats the sticker rate, so comparing them across lenders can save real money.
02The math, step by step
On a 200,000 dollar mortgage, a 1 percent origination fee is 2,000 dollars, charged upfront or added to what you owe.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
An origination fee is NOT part of the interest rate. It is a separate upfront charge, which is why it pushes a loan's APR above its stated rate.
Plain-English answers from our glossary. Receipts included. Never advice.
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