What term describes an up-front cost that generates profit for the lender, often a percentage of the loan amount?

The term that describes an up-front cost generating profit for the lender, often expressed as a percentage of the loan amount, is referred to as an origination fee. This fee is charged by lenders to cover the costs associated with processing a loan application, and it typically serves as a source of profit for the lender at the outset of the loan agreement. By collecting this fee upfront, lenders can offset the costs related to underwriting the loan and can also secure a portion of their expected revenue immediately.

Other fee types, such as document preparation fees, are charged for the administrative work involved in preparing the loan documents but do not necessarily generate profit for the lender in the same way an origination fee does. Title insurance fees relate to the insurance that protects against potential defects in title and are a separate cost not directly linked to the lender’s profit. Discount points, on the other hand, allow borrowers to pay a percentage of the loan amount upfront to reduce the interest rate over the life of the loan, which benefits the borrower rather than serving as a profit source for the lender at the beginning of the loan.