How is the loan origination fee typically structured?

The loan origination fee is typically structured as a percentage of the loan amount. This is a common practice in the mortgage industry, where lenders charge a fee that reflects a small percentage of the total loan being borrowed, often ranging from 0.5% to 1% of the loan amount. This percentage-based approach aligns the lender's cost with the size of the loan and compensates them for the work involved in processing and approving the loan application.

Using a percentage allows borrowers to understand the cost in relation to the actual amount they are borrowing, making it easier to compare offers from different lenders. Larger loan amounts will result in higher fees, which makes this structure equitable and scalable according to the size of the loan.

In contrast, a fixed dollar amount could lead to disproportionate costs for smaller loans, while calculating fees based on a borrower's credit score or on a monthly basis would introduce complexities and potentially unfair costs that don’t align with the standard practices of the industry.