Let’s start by saying 1% might be “typical.” Then let’s add to it by saying 0% is also “typical.”

The thing is, you can have three different lenders quote a rate and fees on the same day, and get three different rates and origination fees quoted. This is because the rate and the fees work together. Want the lowest rate? Be prepared to pay more in up-front fees such as origination and/or discount points. Want lower or no up-front fees? Be prepared to pay a higher interest rate which will result in a higher monthly payment.

The reason is simple. Most wholesale loan originators work on commission. They are paid in two ways: yield spread, and fees. The lower your interest rate, the less yield spread the originator receives and the more they have to charge in fees to receive compensation for putting your financing together. The higher your rate, the more they are paid in yield spread and the less they need to charge in fees as compensation.

Yield spread is simply a commission paid by the purchaser of the loan, to the originator. It’s typically a percentage of the loan amount.

Photo by Volkan Olmez on Unsplash