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Loan origination fee

A charge a lender makes for setting up a loan, usually a percentage of the amount borrowed, either paid up front or taken out of the money you receive.

What It Means

A loan origination fee is what a lender charges for making a loan: taking the application, checkingChecking accountA bank or credit union account for everyday money going in and out, used by debit card, checks, transfers and direct deposit. See more it and setting the loan up. It's usually figured as a percentage of the amount you borrow. Some lenders collect it up front or at closing, and others take it out of the loan, so you receive less than you owe. On a mortgageMortgageA loan used to buy or refinance a home, secured by the home itself and repaid in monthly installments over a set term. See more it appears among the origination charges on your Loan Estimate, and on federal student loansFederal student loanA student loan made by the U.S. Department of Education, with a fixed rate set by law and federal repayment plans and protections. See more it's called a loan fee.

Try It: See How Much to Borrow When a Fee Is Taken Out

Enter the amount you need in hand and an example fee. See what you'd have to borrow and what the fee costs.

Amount to borrow$10,417
Fee$417
Cash to bring for the fee$0

You repay the full amount borrowed, fee included, with interest on all of it.

How People Say It

  • "They approved ten thousand, but only ninety-six hundred hit my account."
  • "What's in section A on the Loan Estimate?"
  • "Is there an origination fee, or is it rolled into the rate?"

The Breakdown

Worked example. You need $1010,000 stepsA popular daily step goal that began as the name of a 1960s Japanese pedometer; later studies find health benefits begin well below it. See more,000 in hand, and the lender charges an example 4% fee taken out of the loan:

Borrow $10,000Borrow enough to net $10,000
Amount borrowed$10,000.00$10,416.67
Fee (4%)$400.00$416.67
Money you receive$9,600.00$10,000.00

What the result means. When the fee is deducted, you repay the whole amount borrowed, and interestInterest rateThe yearly percentage a lender charges for borrowing money, not counting fees; the APR adds certain fees to show a fuller cost. See more runs on the fee as well. To end up with the full $10,000, you'd need to borrow the amount divided by (1 minus the fee rate), here $10,000 รท 0.96. That's why a loan with a fee shows an APR above its interest rate: the APR counts the fee as part of what the loan costs.

Where to find it

  • Mortgage: in the origination charges section of your Loan Estimate, alongside any application, underwriting or processing fees.
  • Federal student loan: in the loan fee shown on your disclosure statement.
  • Personal loanPersonal loanAn installment loan, usually unsecured, that a bank, credit union or online lender pays out as a lump sum you can use for almost any personal purpose. See more: in the loan agreement and the offer's APR.

Good to Know

The Consumer Financial Protection Bureau explains that origination charges on a mortgage cover the lender's work in making the loan, and they're itemized on the Loan Estimate so you can compare offers line by line. For Direct Subsidized and Unsubsidized Loans, studentaid.gov says the loan fee is a percentage of the amount borrowed, subtracted from each disbursement, and you still repay the full amount; the percentage can differ depending on when a loan is first disbursed, so check the current figure on studentaid.gov. Fees vary a lot between lenders and loan types, so compare the fee and the APR on each offer.

FAQ

How is a loan origination fee calculated?

Usually as a percentage of the amount borrowed. At an example 4%, a $10,000 loan carries a $400 fee.

Can I avoid an origination fee?

Some lenders don't charge one, and on a mortgage you can compare origination charges across Loan Estimates from several lenders. Weigh a no-fee offer by its APR and total cost, since a higher rate can outweigh a fee you avoided.

Do federal student loans have origination fees?

Direct Subsidized and Unsubsidized Loans carry a loan fee, a percentage of the amount borrowed that's subtracted from each disbursement, according to studentaid.gov. You repay the full loan amount, including the part taken as the fee.

Do It in Buhata

Budget

Once you take the loan, enter its monthly payment as a repeating expense in Budget, based on the full amount borrowed rather than the amount you received.

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Related Terms and Categories

  • Personal loan

    An installment loan, usually unsecured, that a bank, credit union or online lender pays out as a lump sum you can use for almost any personal purpose.

  • Closing costs

    The fees and upfront charges you pay to finalize a mortgage, apart from the down payment, itemized on your Loan Estimate and Closing Disclosure.

  • Mortgage

    A loan used to buy or refinance a home, secured by the home itself and repaid in monthly installments over a set term.

  • Federal student loan

    A student loan made by the U.S. Department of Education, with a fixed rate set by law and federal repayment plans and protections.

  • Debt consolidation

    Rolling several debts into one new loan or card balance, usually to get a single payment and, ideally, a lower interest rate.

Debt and credit

Sources

Consumer Financial Protection Bureau, "What are mortgage origination services? What is an origination fee?"; CFPB, "Loan estimate explainer"; Experian, "What Is an Origination Fee?"; Federal Student Aid (studentaid.gov), "Other than interest, is there a charge for Direct Subsidized Loans and Direct Unsubsidized Loans?"; studentaid.gov, "Interest Rates and Fees for Federal Student Loans"

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