Origination Points: Meaning and Examples in Mortgages

What are origination points?

Origination points are fees charged by a lender to evaluate, process, and approve a mortgage. Each point equals 1% of the loan amount. These fees are typically paid at closing and are part of the borrower’s closing costs. Origination points compensate the lender for administrative and underwriting work required to create the loan.

Key facts
* One point = 1% of the mortgage principal.
* Origination points are charged at closing.
* They are generally not tax-deductible.

Discount points vs. origination points

There are two common types of “points” in mortgage transactions:

• Discount points: Prepaid interest that “buys down” the mortgage rate. Paying discount points lowers your interest rate and monthly payment. Discount points may be tax-deductible under certain IRS rules when they are used to reduce mortgage interest.
• Origination points: Fees paid to the lender for processing the loan. They do not reduce the interest rate and are not tax-deductible.

Both types of points are typically disclosed and paid at closing, but they serve different purposes.

Examples

Origination points example
* Loan amount: $150,000
* Origination charge: 1.5 points = 1.5% of $150,000 = $2,250

Discount points example (hypothetical)
* Loan amount: $300,000, 30-year fixed-rate mortgage.
* Base rate: 4.125%
* Paying 1.524 discount points (1.524% of $300,000 = $4,572) could reduce the rate to about 3.875%.
* Paying 0.461 points ($1,383) could lower the rate to about 4.00%.

Paying discount points can reduce monthly payments and may be worthwhile if you plan to keep the loan long enough to recoup the upfront cost.

How much do origination points usually cost?

On residential mortgages, origination points typically range from 0.5% to 1.5% of the loan amount. Around 1.0% is common, but fees vary by lender and loan program.

Can you avoid origination points?

Yes — options include:
* Shop multiple lenders — some charge no origination fee.
* Negotiate the fee with the lender.
* Ask the seller or real estate brokers to cover the fee as part of the deal.
* Consider lenders that offer no-fee or “no points” loan products (these may offset costs with slightly higher interest rates).

Practical considerations

• Decide whether to pay discount points based on how long you expect to keep the loan and whether you can afford the upfront cost.
• Origination points are often negotiable; getting competing offers strengthens your bargaining position.
• Confirm the tax treatment of any points with a tax professional — discount points may be deductible in some cases; origination points generally are not.

Bottom line

Origination points are a way lenders charge for originating a mortgage. They differ from discount points, which prepay interest to lower the mortgage rate. Always compare offers, ask for a clear breakdown of closing costs, and run the numbers to see whether paying points (discount or otherwise) makes financial sense for your situation.