What is Origination Fee?
The Short Answer
Origination Fee explained simply
An origination fee is what a lender charges you to create a new loan. Think of it as a service charge for their work. This fee covers things like checking your credit, reviewing your application, and getting all the paperwork ready. It’s usually a percentage of the total loan amount, and you pay it at the start of the loan.
Real-World Example
Buying a Business with a Loan
Let's say you're buying a business for $500,000 and you need a loan for $400,000. If the lender charges a 1% origination fee, you would pay $4,000 ($400,000 x 0.01) at closing. This fee is separate from your down payment or interest.
Why this matters
Origination fees add to the total cost of your loan. Knowing about them helps you compare different loan offers. A lower interest rate might look good, but a high origination fee could make the loan more expensive overall.
Always ask lenders for a full breakdown of all fees, not just the interest rate. An origination fee can significantly impact your total loan cost.
Always ask lenders for a full breakdown of all fees, not just the interest rate. An origination fee can significantly impact your total loan cost.
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