What's the difference between origination fees and discount points?

Origination fees and discount points are both fees that may be charged by a lender when you take out a loan, such as a mortgage or personal loan. However, they are different types of fees that serve different purposes.

An origination fee is a fee charged by a lender to cover the costs of processing and underwriting your loan. This fee is typically a percentage of the loan amount, ranging from 1% to 5% or more, and is usually charged upfront at the time you take out the loan. The purpose of an origination fee is to compensate the lender for the time and effort required to process your loan application and make a lending decision.

On the other hand, discount points are a type of fee that you can choose to pay upfront to lower the interest rate on your loan. Each discount point typically costs 1% of the loan amount and can lower your interest rate by 0.25% to 0.5%. The purpose of discount points is to reduce your monthly payments and save you money over the life of the loan.

So, in summary, origination fees are fees that cover the cost of processing and underwriting your loan, while discount points are optional fees that can be paid upfront to lower your interest rate and reduce your monthly payments.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.