Hard Money Points

What Are Hard Money Points?

Points on a hard money loan are origination fees charged by the lender at closing, calculated as a percentage of the loan amount. One point equals 1% of the loan. On a $200,000 hard money loan, two points cost $4,000, three points cost $6,000, and four points cost $8,000. These fees are charged in addition to the monthly interest rate and any other fees (processing, underwriting, inspection fees). Points are the lender's primary profit mechanism on short-term loans and represent the cost of fast, flexible capital that does not require the extensive documentation and time that conventional lending demands.

Calculating Total Cost of a Hard Money Loan

To evaluate a hard money loan, you must calculate the total cost including points, interest, and fees over the expected loan term. Consider a $200,000 hard money loan at 12% interest and 3 points for a 6-month fix-and-flip project. The points cost $6,000 at closing. Monthly interest payments are $2,000 ($200,000 x 12% / 12). Over 6 months, total interest is $12,000. Add a $1,500 origination/processing fee. Total cost: $6,000 (points) + $12,000 (interest) + $1,500 (fees) = $19,500. On a $200,000 loan for 6 months, that equates to an effective annualized cost of approximately 19.5%. This must be factored into your flip profit calculation before you commit to the deal.

Negotiating Points

Points are negotiable, particularly if you are an experienced borrower with a track record of successful projects and timely repayments. First-time hard money borrowers typically pay full price — 3–4 points. Repeat borrowers who have completed 3–5 successful projects with the same lender can often negotiate down to 2 points. High-volume borrowers doing 10+ deals per year may negotiate to 1–1.5 points. Other negotiating levers include offering a higher interest rate in exchange for lower points (reducing upfront cash outlay), bringing a larger down payment, or providing additional collateral. Competition among hard money lenders also creates room to negotiate — get quotes from at least three lenders before committing.

Points vs. Rate Trade-Off

Many hard money lenders offer flexibility to trade points for rate, or vice versa. You might choose between 3 points at 11% interest or 2 points at 13% interest. The optimal choice depends on how long you expect to hold the loan. On a short-term flip (3–4 months), lower points with a higher rate usually saves money because the higher interest accrues for fewer months. On a longer-term hold (9–12 months), lower rates with higher points may be cheaper because the rate savings compound over more months. Run both scenarios with your specific loan amount and expected timeline before choosing. The crossover point — where the options cost the same — is typically around 6–8 months.

Impact on Flip Profit Margins

Hard money costs directly reduce your flip profit margin, and points are a significant component. On a flip with an ARV of $300,000, a purchase price of $200,000, $50,000 in renovation costs, and a $200,000 hard money loan at 3 points and 12% for 6 months, your hard money costs total approximately $19,500. Add $15,000 in buying and selling transaction costs, and your total costs reach $284,500, leaving a gross profit of only $15,500 — a thin 5.2% margin that leaves little room for error. This is why experienced flippers are ruthless about controlling hard money costs: every point saved goes directly to the bottom line.

Reducing Your Hard Money Costs

Beyond negotiating points and rates, several strategies reduce overall hard money costs. Complete projects faster — every month you shave off the timeline saves a full month of interest. Bring more cash to the deal to reduce the loan amount (and therefore the dollar amount of each point). Build a track record and loyalty with one or two lenders to earn preferential pricing. Consider private money from individual investors who may charge lower points than institutional hard money lenders. And always maintain a reserve fund so you do not need to request a loan extension, which typically costs an additional 1–2 points plus continued interest charges.