Origination fee

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An origination fee, or activation fee, is a payment associated with the establishment of an account with a bank, broker or other company providing services handling the processing associated with taking out a loan.[1] [2]

An activation fee is typically a set amount for any account. However, an origination fee usually varies from 0.5% (half a point) to 2% (two points) of a given loan amount, depending on whether the loan was originated in the prime or the subprime market. For example, an origination fee of 3% on a £200,000 loan is £6,000.[2] In the United States origination fees are allowed for mortgages but are illegal for other loans. [3] The FTC indicates origination fees are scams.[4]

Discount points are used to buy down the interest rates, temporarily or permanently. Origination fees and discount points are both items listed under lender-charges on the HUD-1 Settlement Statement. Regulation Z was enacted to protect buyers from abusive lending practicing with regards to origination fees and origination fees for mortgages can not be deducted.[5]

Notes[edit]

  1. ^ "Origination Fee". investopedia. Retrieved 21 May 2013. 
  2. ^ a b "loan origination fee". investorwords. Retrieved 21 May 2013. 
  3. ^ "Scam alert: BBB says advanced fee loan scams are on the rise". Retrieved 31 May 2016. 
  4. ^ "Six Sure Signs of an Advance-Fee Loan Scam". Retrieved 31 May 2016. 
  5. ^ "Loan Origination Fees: What They Are And How You Can Save". personaldebtrelief. Retrieved 1 January 2014.