Hard Money Points and Fees Explained

Why the interest rate alone is misleading

When investors shop hard money loans, the interest rate gets most of the attention. But on a short-term loan, the upfront and backend costs can be as large as the interest itself. A loan with a lower rate and higher points can cost more than a loan with a higher rate and fewer points, depending on how long you hold it.

That is why experienced investors compare total cost over the hold period: every dollar of interest, points and fees from closing to payoff. This guide explains each cost you are likely to see on a hard money term sheet, then walks through a full worked comparison of three hypothetical lenders.

All numbers in this guide are illustrative. Pricing varies widely by lender, borrower experience, leverage, loan size, property type and market.

Origination points

A point is 1% of the loan amount. Origination points are charged by the lender for making the loan and are usually paid at closing, either in cash or deducted from loan proceeds.

• 1 point on a $250,000 loan = $2,500
• 2 points on a $250,000 loan = $5,000
• 1.5 points on a $400,000 loan = $6,000

On many hard money loans, origination points commonly fall somewhere in the 1 to 3 point range, though you may see higher or lower. First-time borrowers, small loans and higher-leverage requests often pay more.

Points on the full loan or the funded amount?

On a fix and flip or construction loan, points are usually calculated on the total loan amount, including the rehab or construction holdback that has not been disbursed yet. So on a $300,000 loan where only $220,000 funds at closing, 2 points is $6,000, not $4,400. Confirm this on every term sheet.

How hard money points differ from mortgage discount points

On a home mortgage, borrowers can often pay discount points to buy down the interest rate. The CFPB explains how discount points and lender credits work on consumer mortgages. Hard money origination points are different: they are primarily a fee for making the loan. Some lenders will trade rate for points, but it is not a standardized buydown.

Exit points and backend fees

Some lenders charge an exit fee or exit points when the loan is paid off, rather than (or in addition to) points at closing. For example, a lender might advertise 1 point at closing plus 1 point at payoff.

Exit fees make the upfront cost look lower, but they are still part of the total cost. Treat them the same as origination points when comparing offers.

Watch for variations:

• An exit fee that is waived if you refinance with the same lender’s long-term loan program.
• An exit fee calculated on the original loan amount even if you paid part of it down.
• A payoff, demand or reconveyance fee charged when the loan is closed out. These are often small but add up.

Lender fees: underwriting, processing and more

Beyond points, most lenders charge flat fees for the work of approving and closing the loan. Names vary, and some lenders roll several of these into one line:

• Underwriting fee: for reviewing the borrower, property and budget.
• Processing fee: for gathering documents and coordinating closing.
• Document preparation or legal fee: for preparing the note, deed of trust or mortgage, and guaranty.
• Application fee: charged by some lenders upfront, sometimes credited at closing.
• Valuation fee: for an appraisal, broker price opinion or internal valuation. This may be passed through at cost.
• Budget or feasibility review fee: common on construction and heavy rehab loans.
• Wire, flood certification, credit report and background check fees: usually small.

Lender fees often total somewhere from several hundred to a few thousand dollars. Ask for an itemized list in writing. Two lenders quoting the same rate and points can differ by thousands of dollars in fees.

Draw and inspection fees

On fix and flip and construction loans, the renovation or building budget is held back and released in draws. Each draw usually requires an inspection to confirm the work is done, and lenders commonly charge for it.

• Per-draw fee: a flat fee each time funds are released.
• Inspection fee: for the site visit, which may be in person or done by photo or video.
• Wire fee: for sending each draw.

If a lender charges $250 per draw and your project takes five draws, that is $1,250. A ground-up build with eight or more draws can cost meaningfully more. Ask how many draws are allowed, whether there is a minimum draw size, and how long a draw takes to fund. A slow draw costs you time, and time costs interest. See how construction draws work for the full process.

Third-party closing costs

Some costs go to third parties rather than the lender. They are usually similar regardless of which lender you choose, but you still need cash for them:

• Title insurance and settlement or escrow fees. Lenders typically require a lender’s title policy.
• Recording fees for the deed and the lender’s mortgage or deed of trust.
• Transfer or mortgage taxes in states and localities that charge them.
• Hazard insurance, often a builder’s risk or vacant property policy during renovation.
• Attorney fees in states where closings use attorneys, or if you hire your own.
• Prepaid interest from closing to the first payment date, at some lenders.

These vary a lot by state, county and price. Ask your title or escrow company for an estimate early. Then plug everything into the cash to close calculator to see how much you need at closing.

If you have bought a home with a mortgage, the CFPB’s guide to the Closing Disclosure is a helpful reference for what each type of closing cost means, even though business-purpose loans may not use that exact form.

Interest terms that change the real cost

The way interest is calculated can matter as much as the rate itself. Read these terms carefully.

Interest on the full loan vs drawn balance

Some lenders charge interest only on funds actually disbursed. Others charge interest on the full loan, including undrawn rehab money, from day one. This is often called Dutch interest. On a loan with a large holdback, the difference can be thousands of dollars. Read Dutch interest explained for a side-by-side example.

Minimum interest

Many lenders require a minimum amount of interest, often expressed as a number of months (for example, three or six months). If you pay off early, you still owe interest for the minimum period. This matters most on fast flips and bridge loans.

Prepayment penalties

Short-term hard money loans often have no separate prepayment penalty beyond any minimum interest, but some do. Ask directly.

Extension fees

If the project runs past maturity, many lenders offer extensions for a fee, often a fraction of a point up to a full point per extension, sometimes with a rate increase. Get extension terms in writing before closing.

Late fees and default interest

Late payments typically trigger a late fee, and a default can trigger a much higher default interest rate. You do not plan to pay these, but they show how much a delayed project can cost.

Worked example: comparing three lenders’ total cost

Here are three hypothetical offers on the same fix and flip loan. To keep the math simple, assume interest is charged on the full $300,000 from closing (as with Dutch interest), the rehab is released in four draws, and third-party closing costs are the same at every lender, so they are left out of the comparison.

	Lender A	Lender B	Lender C
Loan amount	$300,000	$300,000	$300,000
Interest rate	10.5%	12.0%	9.99%
Origination points	2 ($6,000)	1 ($3,000)	3 ($9,000)
Exit points	None	None	1 ($3,000)
Lender fees	$1,995	$995	$2,495
Draw fees (4 draws)	$250 each ($1,000)	$150 each ($600)	$300 each ($1,200)
Minimum interest	None	None	6 months
Monthly interest	$2,625	$3,000	$2,497.50

Total cost if you pay off in 6 months

• Lender A: $15,750 interest + $6,000 points + $1,995 fees + $1,000 draws = $24,745
• Lender B: $18,000 interest + $3,000 points + $995 fees + $600 draws = $22,595
• Lender C: $14,985 interest + $9,000 points + $3,000 exit + $2,495 fees + $1,200 draws = $30,680

Lender B has the highest rate but the lowest total cost at 6 months. Lender C has the lowest rate and the highest total cost.

Total cost if you pay off in 12 months

• Lender A: $31,500 + $6,000 + $1,995 + $1,000 = $40,495
• Lender B: $36,000 + $3,000 + $995 + $600 = $40,595
• Lender C: $29,970 + $9,000 + $3,000 + $2,495 + $1,200 = $45,665

At 12 months, A and B are essentially tied, with A now $100 cheaper. C is still the most expensive because its upfront and exit costs are so high.

Total cost if you pay off in 4 months

• Lender A: $10,500 + $8,995 = $19,495
• Lender B: $12,000 + $4,595 = $16,595
• Lender C: 6-month minimum interest of $14,985 + $15,695 = $30,680

Because of the minimum interest, Lender C costs the same whether you pay off in 4 months or 6. A fast exit gets no benefit from its low rate.

Finding the breakeven between points and rate

When one lender charges more upfront and another charges a higher rate, you can find the hold period where they cost the same.

1. Add up the fixed costs (points, exit points, lender fees, draw fees) for each lender. In the example, Lender A’s fixed costs are $8,995 and Lender B’s are $4,595. A costs $4,400 more upfront.
2. Find the monthly interest difference. B’s rate is 1.5 percentage points higher. On $300,000, that is $375 a month more interest.
3. Divide. $4,400 ÷ $375 ≈ 11.7 months.

If you expect to pay off in less than about 11.7 months, Lender B is cheaper. Beyond that, Lender A wins. Since most flips aim to finish well inside a year, B looks better for a typical flip, unless delays are likely. Be honest about your timeline, including permits, contractor schedules, listing and closing. If delays are common in your market, test a longer hold period, and add any extension fee you would trigger.

The same logic applies to interest calculation methods. If one lender charges interest only on drawn funds, its effective monthly interest early in the project is lower than its rate suggests, which shifts the breakeven.

How to read a term sheet and what to ask

Hard money loans on investment property are business-purpose loans. Under Regulation Z, credit extended primarily for business purposes is generally exempt from the Truth in Lending disclosure rules (see the CFPB’s text of § 1026.3). In practice, that often means you will not receive the standardized Loan Estimate a homebuyer gets. The term sheet and loan documents are your disclosure, so read them closely.

Ask every lender these questions in writing:

• What are the origination points, and are they calculated on the total loan including holdback?
• Are there exit points or payoff fees?
• What is every lender fee, by name and amount?
• What does each draw cost, including inspection and wire fees? How many draws are expected?
• Is interest charged on the full loan or only on drawn funds?
• Is there minimum interest or a prepayment penalty?
• What does an extension cost, and what conditions apply?
• Which third-party costs should I expect, and which valuation will you order?

Then calculate total cost at your expected hold period and at a delayed one. If you are still deciding which kind of loan fits your project, see fix and flip vs bridge vs construction loans.

A note on taxes

How points, fees and interest are treated for taxes depends on how you hold the property. For example, a flip held for resale may be treated differently from a rental you keep. The IRS discusses business interest in Topic No. 505, Interest Expense, and covers points and other loan costs on rental property in Publication 527, Residential Rental Property. Rules can be technical, so talk to a qualified tax professional about your situation. This guide is not tax advice.

Compare lenders on total cost, not headline rate

The worked example shows why a side-by-side view matters: the lowest rate was the most expensive loan, and the cheapest loan depended on the hold period.

Hard Money Lender Match is built around this comparison. Enter your deal and expected hold period on the comparison tool, and you will see anonymized lenders with rate, points, lender fees and total cost over your hold period, then choose up to three to contact. It is free for borrowers.