Glossary › Glossary
Points are upfront fees charged by a lender at closing, expressed as a percentage of the loan amount. One point equals 1% of the loan. Hard money loans typically carry 1-4 points depending on the lender, deal type, and borrower profile. Points are paid at closing and are separate from the ongoing interest rate — they are a cost of getting the loan, not a recurring monthly charge.
One point = 1% of the loan amount
On a $300,000 loan:
Points are charged by the lender and paid by the borrower at closing, typically out of the cash the borrower brings to the closing table. They appear on the settlement statement as an origination charge.
These terms are often used interchangeably, but they can also be distinct items on a settlement statement:
Read the term sheet carefully. "2 points plus a $1,500 origination fee" is different from "2 points" alone. The total upfront cost is what matters for comparison.
Hard money points vary significantly based on:
Lender type: Direct balance sheet lenders often charge 1.5-3 points. Some correspondent lenders are competitive at 1-2 points on standard programs.
Deal type: Construction loans typically carry higher points than fix and flip loans due to greater complexity. DSCR loans may have lower points than short-term fix and flip loans.
Borrower experience: First-time borrowers may pay higher points (an additional 0.5-1 point) compared to experienced investors.
Loan size: Very small loans (under $100,000) often carry higher point rates because the lender's fixed processing costs are proportionally larger. Very large loans may negotiate lower points based on volume.
Market conditions: In competitive markets with abundant lender capital, points compress. In tight capital markets, points rise.
Typical range: 1.5-3 points for standard fix and flip loans. 1-2 points for DSCR. 2-4 points for construction.
This matters and is often overlooked. Ask explicitly:
Points on the total committed loan amount: The borrower pays points on the full loan at closing — including the holdback that has not been disbursed yet. More common.
Points on the funded amount only: The borrower pays points only on the amount actually disbursed at closing (the acquisition portion), with additional points charged as holdback draws are made. Less common, but better for the borrower on large holdback loans.
On a $300,000 loan with $100,000 holdback, paying 2 points on the full committed amount costs $6,000 at close. Paying 2 points on the $200,000 funded at close costs $4,000, with the remaining $2,000 charged across draws. Same math, different cash timing.
Hard money deals often involve both:
Lender points: The origination fee charged by the lender for making the loan. Goes to the lender.
Broker points: The fee charged by the broker for placing the deal. Goes to the broker. Paid separately by the borrower at closing.
Total upfront cost to the borrower = lender points + broker points + other closing costs.
A deal with a lender charging 2 points and a broker charging 1.5 points has a total of 3.5 points in origination costs before title, escrow, appraisal, and other fees. Know the total, not just one component.
On a short-term hard money loan, the total cost comparison — not just points — is what matters. A loan with 1.5 points at 12% interest and a 30-day closing timeline may cost more than a loan with 2.5 points at 10.5% interest and a 10-day close, depending on hold time and deal circumstances.
Model the full cost: points + total interest over the expected hold period + all fees. The loan with the lowest number on points is not always the lowest cost option.
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