Why Origination Fees?

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February 29, 2000, Revised January 5, 2007

"After shopping rates and points at several lenders, I discovered that one of them charged an origination fee of 1 point, one charged a fee of 1/2 point, and two did not charge such a fee. Am I correct that to make valid cost comparisons, I should add origination fees to points?"

Yes, origination fees expressed as a percent of the loan are points in disguise. In shopping for a loan, the consumer should always ask the lender for the total of all charges expressed as a percent of the loan amount, including origination fees, and all charges expressed in dollars. The total of these is the relevant number.

Reporting services that publish information on mortgage rates and points do not show dollar fees, but most readers interpret the "points" in these reports to include all charges expressed as a percent of the loan. This is not the case for lenders who charge an origination fee, however. Such lenders can show lower points, thereby looking better in the comparisons. This is pure gamesmanship.