How Is the Mortgage Refinance Origination Fee Determined?

Identification

The origination fee for a refinance mortgage is the lender's charge to handle your mortgage application. The Federal Reserve Board Consumer's Guide to Mortgage Settlement costs notes the fee may also be referred to as a processing, underwriting or administrative fee. The origination fee is one of the ways the lender gets paid for providing the refinance loan. Origination fees are included in the closing costs of a mortgage.

The amount of the origination fee will be expressed as points. One point is 1 percent of the loan amount. For example, on a $250,000 refinance mortgage, a one point origination fee will be a charge of $2,500. The Federal Reserve Board handbook on mortgage refinancing states the range for origination fees is zero to 1.5 points. The most common rate for origination fees is one point.

The mortgage departments of the large banks have a standardized origination fee that is paid by all mortgage customers. Government mortgage guarantee programs like FHA and VA limit the origination fee to 1 percent, so the banks use the one point fee as a standard. Independent mortgage brokers can make higher profits by charging a higher fee. A lender may try to charge an origination fee of two points or more to unsuspecting borrowers.

Mortgage lenders may also charge discount points on a loan. Discount points are a fee to have a certain rate for the loan. The value of a discount point is the same as an origination fee point. If one lender is charging a one point origination fee and another has no origination fee and two discount points for the same rate, the cost to the borrower is the same. When shopping for a refinance mortgage, the borrower should look for the lowest total points -- discount plus origination -- for a specific interest rate.

There should be special circumstances for a mortgage lender to charge more than a one point origination fee on a refinance mortgage. A borrower with credit or income problems who wants to refinance may be required to pay a higher origination fee to compensate the mortgage broker for extra work. Even a borrower who has special circumstances should get loan quotes from several lenders before paying a higher than standard origination fee.