What are origination points charged for in mortgage transactions?

Origination points in mortgage transactions are charged primarily to compensate lenders for the work involved in evaluating, processing, and underwriting loans. This includes tasks such as assessing the borrower's creditworthiness, determining eligibility for the loan, and managing the overall loan process from application to closing. Essentially, origination points are a method for lenders to earn a fee that reflects the services provided in facilitating the loan.

These points are typically expressed as a percentage of the loan amount and are paid at the closing of the transaction. The funds collected through origination points enable lenders to cover costs associated with the required due diligence and operational efforts involved in processing mortgages, which can be significant given the complexity of underwriting and the various regulatory requirements governing mortgage lending.

While other costs exist in the mortgage process, such as insurance premiums, administrative costs for credit checks, and government reporting, these are typically accounted for separately and not specifically tied to origination points.