Loan Origination Fee

A loan origination fee is a charge assessed by a lender or broker to cover the administrative and processing costs of creating a commercial mortgage. In CRE lending this fee is typically expressed as a percentage of the loan amount or as a flat sum and is generally payable at closing. It compensates the lender for credit underwriting, documentation, and structuring work and may reflect the perceived complexity or risk of the transaction. Borrowers should expect the origination fee to be disclosed in term sheets and closing statements.

When negotiating a commercial mortgage, treat the origination fee as a material component of total borrowing costs and request an itemized breakdown from the lender or broker. Compare competing offers on an all-in basis by adding origination fees to interest costs and other closing expenses, and confirm whether the fee can be capitalized into the loan or must be paid out of pocket. Confirm payment timing and any non-refundable portions before accepting a commitment letter to avoid surprises at closing and to align net proceeds with acquisition or refinancing plans.

The origination fee affects the borrower’s net proceeds from a loan and the effective cost of financing, which in turn influences returns, cash flow planning, and the viability of an acquisition or refinance. For sponsors and investors, a seemingly modest percentage can translate into significant dollars on large commercial loans, so fee structure and negotiability matter. Origination fees also indicate how a lender prices its underwriting effort and risk appetite, and they can be a negotiating lever when multiple financing options are available or when a borrower brings strong sponsorship or collateral to the table.