An origination fee is a fee charged by a lender to process a new loan application. It is typically a percentage of the total loan amount, ranging from 0.5% to 5% depending on the type of loan and the lender. The fee is charged to compensate the lender for the costs associated with processing the loan application, such as underwriting, funding, and administrative services. The origination fee is usually included in the loans annual percentage rate (APR), which represents the true annual cost of borrowing when factoring in the interest rate and upfront fees.

Its important to note that origination fees are not always negotiable, and reducing or avoiding them may mean paying a higher interest rate over the life of the loan. Origination fees are typically set in advance of the loan execution and should not come as a surprise at the time of closing. They are listed in section A of page 2 of the Loan Estimate and Closing Disclosure.

Origination fees are common in mortgages and personal loans, but they may also be charged by banks, brokers, or other companies providing services handling the processing associated with taking out a loan.