Glossary
Points (loan points)
A point is an upfront loan fee equal to 1% of the loan amount, paid at closing. Two points on a $221,000 loan is $4,420.
Points are the main upfront cost of hard money. On a short loan they can cost more than the difference in interest rate between two lenders.
How to calculate it
Points cost = loan amount x number of points / 100
- Loan amount
- $221,000
- Lender A: 2 points, 11% rate
- $4,420 points
- Lender B: 1 point, 12% rate
- $2,210 points
- Extra interest at Lender B: 1% on about $200,000 average balance for 6 months
- $1,000
- Lender B total extra cost vs points saved
- $1,000 vs $2,210
Cheaper lender on this timelineLender B, by about $1,210
On a longer project the higher rate catches up. At 6 months, the gap is $1,210; at about 13 months, it closes.
Where else points show up
- Extensions. Running past the loan term often costs 1 point per extension. Run The Deal's default is 1 point per 3 months.
- Exit fees. Some lenders charge points at payoff.
- Refi loans. Long-term loans may charge points too, sometimes to buy a lower rate.
What to watch
- Points are cash at closing. They add to your peak cash.
- Points are on the full loan, including the rehab holdback you have not drawn.
- Compare total cost over your real timeline, not the rate alone. Points are part of closing costs.
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