Origination fees are also known as activation fees. These are the costs pertaining to setting up an account with a mortgage broker, bank, or other firm that will go through the tasks of collecting and processing all documents and requirements for getting a loan, in particular a mortgage on a house.
These origination fees are generally amounts that are pre determined for any new account. Origination fees can range from half a percentage point to two percentage points of the entire loan total. This variance has to do with where the loans come from, off of either the prime or the subprime loan market. On a subprime mortgage for $200,000, the origination fee would likely amount to two percent, equaling four thousand dollars in this particular case.
The average origination fee comes in at approximately one percent of the total mortgage loan dollar amount. This fee goes to the firm that originates and processes your loan. It defrays their expenses that arise from developing, putting together, and finally closing on your mortgage.
The rise of the Internet has allowed for an alternative compensation scheme for companies that put together and originate mortgages. While the vast majority of mortgage brokers and banks still charge these loan origination fees, there are some Internet based brokers who use a different model. These entities do no charge origination fees at all; instead they pass the savings directly on to you the customer. The way that they get paid is by selling your loan to an investor once it is closed. The investor pays them a premium for the packaged loan, which covers the origination fees, and the online mortgage broker is compensated for his or her work and time.
The origination fees can be deducted from taxes. The year that the transaction closed and the origination fees were charged, they can be used to reduce actual income on income tax forms. The Internal Revenue Service permits this reduction to income no matter who pays the origination fees, meaning that a person who employs a broker that does not charge them origination fees will still be able to deduct the fees that the investors who later buy the loan are subsequently paying to the mortgage broker. This means that if you take out a $200,000 mortgage, then you are able to deduct the $2,000 in loan origination fees, even if you did not have to pay them, but an investor in the loan did instead.
Origination fees are listed on the HUD-1 Settlement form. They are tallied beneath the sub-heading of lender charges. Discount points that are used to bring down interest rates either permanently or temporarily are also listed on this form under the category.