The origination fee compensates the lender for evaluating, processing, and funding a mortgage. It is typically expressed as a percentage of the loan amount, with conventional loans charging 0.5-1% and hard money or bridge loans charging 1-3 points. This fee is paid at closing and directly reduces the investor's cash-on-cash return. When comparing loan offers, investors should evaluate the origination fee alongside the interest rate, as a lower rate with higher origination may not always be the better deal, especially for short-term holds. Some lenders offer reduced origination fees for repeat borrowers.