What is typically 1 percent of the loan amount and covers the lender's costs for generating the loan?

The loan origination fee is a charge typically assessed by lenders for processing a new loan application. It is generally around 1 percent of the total loan amount and covers various costs associated with originating the loan, including underwriting and administrative expenses. Understanding this fee is crucial for borrowers as it directly impacts the overall cost of obtaining a mortgage. The loan origination fee is distinct from other fees. For instance, discount points are optional fees paid upfront to reduce the interest rate, while prepaid interest represents interest that accrues before the first payment is due. An application fee is usually a smaller charge to cover the cost of processing the application itself, but it does not encompass the broader range of services included in the loan origination fee.