Should You Pay a Loan Origination Fee?

If you’re considering mortgage refinancing you might want to avoid paying the loan origination fee. Considering that many of the big names like Amerisave and Wells Fargo Refinance promote no fee refinance offers you might wonder what’s the point of paying the loan origination fee? The truth of the matter is that there are no free lunches when it comes to mortgage refinancing. Take a close at the fine print on those no fee refinance offers and you’ll find there are good reasons for paying your broker’s loan origination fee on your next home loan.

Loan Origination Fee Definition

Your mortgage loan origination fee, also called loan origination points, is simply the fee paid to your broker for the work they do arranging your mortgage refi. It’s not uncommon to find brokers charging 2-3% of your loan amount for arranging mortgage refinancing; however, a perfectly reasonable amount to pay your broker is actually one percent of your home loan amount. Did you know that all the closing costs you can expect to pay are negotiable and vary between lenders?

One of the most common mortgage mistakes is focusing only on getting the lowest refinance mortgage rates at the expense of fees. This mistake makes it difficult, even impossible to recoup your out-of-pocket expenses at closing. That’s right, the test of how good of a deal you’re getting when mortgage refinancing comes not from getting the lowest interest rate but how much you have to pay closing on your new home loan.

Mortgage Brokers Work For You

One of the advantages of finding the right kind of broker to arrange your new home loan is not only getting access to wholesale mortgage rates but avoiding lender junk fees. Good mortgage brokers can cut through the crap lenders are charging to boost their profits at your expense. Sure there are no fee refinance offers that will pay the broker’s fee for you; the problem is you’re giving up the lowest refinance mortgage rates in exchange for the lender paying the closing costs for you. Higher interest rates result in higher monthly payments and higher finance charges over the lifetime of your home loan.

What About Lender Junk Fees?

The mortgage loan origination fee you’re charged when refinancing isn’t a junk fee; however, your Good Faith Estimate is loaded with unnecessary fees. One of the biggest offenders you’ll find is the rate lock fee. This is usually slipped in by a dishonest broker; if you find rate lock fees in your loan documents it’s a sure sign that you need to look somewhere else. Other common junk fees include loan processing fees, application fees, and courier fees. Don’t be afraid to question everything on your Good Faith Estimate. All of the fees you find in your GFE are negotiable…spend a little time haggling and you can literally save yourself hundreds, even a thousand dollars closing on your new home loan.