What is a loan origination fee?

A loan origination fee is typically charged as a percentage of the loan amount. This fee covers the lender's costs associated with processing the loan application and can include underwriting, funding, and other administrative expenses. Charging a percentage allows the fee to scale with the size of the loan, meaning that larger loans will incur higher fees, reflecting the increased risk and complexity involved in originating those loans.

While some lenders might have a flat fee structure, it is more common for origination fees to be based on a percentage, as this aligns the costs more closely with the borrower’s loan size. Therefore, understanding that the origination fee usually varies based on the loan amount helps borrowers better anticipate the total cost of borrowing. The other options do not accurately represent how loan origination fees are generally structured in practice.