What is an origination fee, and it smart to pay it?

Mortgage and Lending with Cambria Mortgage NMLS 274132

Minneapolis, MN: Lenders don't work for free. Lenders get paid for doing loan, with the standard historic number having always been 1% of the loan amount, known as a loan origination fee. Until recently, that was just how it went. You paid loan origination fee as part of your closing costs, right along with appraisal, credit report, and everything else.

In the last 10-years or so, a second option has become popular, that being you DON'T pay 1% origination fee. Cool, save 1%... Yippie... Well, no so fast.

Again, lenders don't work for free, so they simply make up this lost up front origination fee up by charging you a higher interest rate instead. So you are still paying it, but paying it over time. This is the same concept with no closing costs loans, except the crank the rate up even higher to make up not just loan origination, but all the other costs too.

Depending on how long you stay in the home, paying a higher rate may cost you a heck of a lot more over time than you ever saved up-front. Basically understand that interest rate and closing costs therefore go hand in hand.

There is absolutely nothing wrong with paying origination, or discount points. The more you pay up front, the lower your interest rate. Simply ask your Loan Officer to give you at least two options of rate and cost. One with paying the higher costs and getting a lower interest rate, and one without paying those costs up front and taking a higher interest rate.

From there, decide if you have the additional money to spend today, what is the interest rate and payment difference between the two options, and will you live there long enough to make sense paying more up-front today for the lower interest rate.

Almost without fail, if you have the money, most people pay the origination fee because they can do simple math. On the other hand, the cheaper cost up-front today, can also make more sense for you too, especially is you are tight on your cash to close requirements (Down payment + Closing costs).

Either way, the math and what you have available in cash to close today usually makes the answer in your individual case super obvious. So don't let anyone tell you paying origination points or not paying points is good or bad. It is an individual choice that I offer 100% of the time to 100% of my clients, and your Loan officer should be doing it too!


I lend in Minnesota, Wisconsin, and South Dakota - and we'd love to be your mortgage lender. 

Call (651) 552-3681, or just apply online at https://joemetzler.com/application.  NMLS274132.

Not an offer to enter into an interest rate lock agreement.  Not everyone will qualify. Cambria Mortgage, part of the Cambria counter top family, is an Equal Housing Lender. 33 Wentworth Ave E, St Paul, MN 55118. Company NMLS 322798


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Raymond Henson, SRES, GRI
eXp Realty of California, Inc. (lic. #01878277) - Elk Grove, CA

You have to pay one way or another.  Thank you for the explanation.

Nov 18, 2019 03:37 PM #1
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Joseph Metzler

Sr Loan Officer
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