Points (Origination Points)
An upfront fee equal to a percentage of the loan amount, paid to the lender at closing. One point = 1% of the loan. Hard money loans commonly charge 1–3 points.
Points — also called origination points or discount points — are an upfront fee charged as a percentage of the loan amount. One point equals 1% of the loan. On a $200,000 loan, 2 points is $4,000, paid at closing.
Points are how short-term investor lenders earn their return on a loan that may only be outstanding for a few months. A hard money or fix-and-flip loan that carries a 10% interest rate for six months earns only ~5% in interest — the points are where much of the lender's compensation comes from.
Origination points vs. discount points
- Origination points are the lender's fee to make the loan. On investor bridge and hard money loans these typically run 1–3 points.
- Discount points are an optional fee you pay to buy down your interest rate, common on longer-term DSCR loans. Paying 1 point might lower a 30-year DSCR rate by roughly 0.25%.
A worked example
| Item | Amount |
|---|---|
| Loan amount | $200,000 |
| Points charged | 2.0 |
| Cost of points | $4,000 |
| Plus underwriting/doc fees | ~$1,500 |
| Total upfront cost | ~$5,500 |
Points are usually paid out of pocket at closing or deducted from the loan proceeds, which reduces the net cash you receive.
How points trade off against rate
There's an inverse relationship between points and rate. More points = lower rate; fewer points = higher rate. The right balance depends on your hold period:
- Short hold (a flip): minimize points — you won't hold long enough for a lower rate to pay back the upfront cost.
- Long hold (a rental): consider buying down the rate with discount points, since you'll pay that rate for years.
Always compare the total cost of the loan — points + interest + fees over your expected hold — not the rate or the points in isolation.
Frequently asked questions
How much are points on a hard money loan?
Hard money and fix-and-flip loans typically charge 1–3 origination points. The exact number depends on loan size, leverage, your experience, and the lender — larger loans and experienced borrowers usually pay fewer points.
Are points the same as the interest rate?
No. Points are a one-time upfront fee charged as a percentage of the loan. The interest rate is the ongoing annual cost. They trade off against each other — paying more points usually buys a lower rate.
Can I roll points into the loan?
Sometimes. On many investor loans, points and fees are deducted from the loan proceeds rather than paid out of pocket, which reduces your net funding. On others they must be paid in cash at closing. Confirm with your lender.