A 10% rate with 2 points isn't the same deal as 11% with no points. The rate is the number everyone focuses on, but it's the wrong place to start. Two offers can have similar rates and cost you very different amounts once you add in points, fees, and how long you hold the loan. Here's how to compare lenders the right way, plus the fees most of them won't bring up unless you ask.

Points vs. Rate Comes Down to Hold Time

An origination point (a fee equal to 1% of the loan amount, paid at closing) is money you pay upfront. On a $200,000 loan, 2 points is $4,000 out of pocket the day you close, no matter how long you keep the loan. Some lenders charge fewer points and make up for it with a higher rate. Others charge more points for a lower rate. Neither one is automatically better. It comes down to how long you'll hold the loan.

Total Cost = (Loan Amount x Rate x Hold Period in Years) + (Loan Amount x Points %)

Here's a $200,000 loan held for 6 months:

  • Option A: 10% rate, 2 points = ($200K x 10% x 0.5) + ($200K x 2%) = $10,000 + $4,000 = $14,000
  • Option B: 12% rate, 0 points = ($200K x 12% x 0.5) + $0 = $12,000 + $0 = $12,000

On a six-month hold, Option B is cheaper even though the rate is higher. The two cost about the same right around the twelve-month mark. Only after a year does Option A's lower rate pull ahead. Most flips run six to nine months, so fewer points usually wins. The only way to know for sure is to run the numbers on your real hold time.

Points or Rate?
Put in the two quotes you're weighing, then slide to how long you think you'll hold. The chart adds up points and interest month by month, same math as the example above, so you can see where one quote catches the other.
Option A
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Option B
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6 months
1 month18 months
An estimate for planning, not a quote. It counts points at closing plus interest on the full loan for every month you hold, same as the formula above. It leaves out lender fees, draw fees, extensions and Dutch vs. standard interest, and any of those can change the answer. Get your real term sheet.
Always calculate your total cost of capital over the time you expect to hold the loan, and don't stop at the interest rate. Keep in mind this is a simplified comparison, too. Whether your loan uses standard or Dutch interest also changes what you actually pay, and I'll get to that below.

The Add-On Fees That Change the Math

This is where investors lose money without noticing, because these fees rarely come up unless you ask. These are the ones I check for on every term sheet:

  • Prepayment penalties: a charge for paying off early. Sometimes it's a minimum amount of interest you owe no matter how fast you sell or refinance. If your plan is to be in and out fast, this one stings.
  • Extension fees: many lenders give you a six-month term, then charge 1% or 2% to extend it. It's a buyer's market and properties are sitting longer, so know this number before you sign. There's a real chance you'll need it.
  • Processing, doc prep, admin, and wire fees: small charges on top of your points that add up fast.
  • Draw fees: depends on the lender, usually around $150-$400 every time you request a draw (your rehab money released in stages as you finish work). That's a fee just to get to your own money, though a few lenders don't charge one at all.

The sneakiest one is a back-end origination fee. The term sheet shows 1%, and you assume that's the cost of the loan. But some lenders quietly add another 1% or 2% on the back end. When you pay off, it comes straight out of your profit, and you never saw it coming. If you don't read the full terms, you won't catch it.

Ask If Your Quote Is Standard or Dutch Interest

A lot of lenders just hand you a rate and never tell you whether it's standard or Dutch interest. When I ask investors who are shopping multiple lenders whether they've asked about this, most of them tell me they don't know what the difference is. It matters, because it changes what you really pay.

The quick tell: a Dutch loan has one flat payment from day one, because you're paying on the full loan, rehab money included. A standard loan's payment starts lower and climbs as you draw. Here's Dutch vs. standard interest explained, with the math side by side.

Reliability Is Part of the Price

Rate and fees matter, but so does whether the lender can actually close. Say a lender quotes you a great rate and then finds a reason not to fund at the closing table. That lender just cost you the entire deal, your earnest money, and your reputation with the seller. The cheapest quote in the world doesn't do you any good if it falls apart at the worst possible moment.

Before you commit, ask how many loans they've funded in your market, ask for references, and ask what happens if the appraisal comes in low. Price matters, but on a deal with a tight deadline, reliability is often what matters most.

How I Compare Lenders for You

This is the part of the job I love. When a deal comes in, I'm not picking from a list of three. I narrow a network of 400+ lenders down to the handful that actually fit your deal, and I pull real quotes. Then I lay them out with the full cost included, meaning the points, the rate, the structure, and the fees most people never think to ask about. You see the strongest options with the real all-in number instead of the cleaned-up version on the front of the term sheet. You should never have to wonder what a loan is really going to cost you.

"The rate on the front of the term sheet is the easy part. The money is made or lost in the fine print."

Frequently Asked Questions

Is the lender with the lowest rate always the cheapest?
No. Points, fees, and your hold time all change what you really pay. If you only hold the loan a few months, a higher rate with zero points can be cheaper than a lower rate with two points. You have to compare the total cost of capital over the time you'll actually hold the loan, not just the rate.
What is a prepayment penalty on a hard money loan?
It's a charge for paying the loan off early. Sometimes it's set up as a minimum amount of interest you owe no matter how fast you sell or refinance. A lot of borrowers don't realize it's in their loan until they go to pay it off. Always ask whether there's a prepayment penalty before you sign.
How can I tell if a loan is Dutch or standard interest?
Look at the payment. With Dutch interest, you make one flat monthly payment for the whole life of the loan, and that includes interest on rehab money you haven't used yet. With standard interest, your payment starts lower and goes up as you draw from the rehab holdback, because you only pay on the part you've actually used.
What hidden fees do hard money lenders charge?
The common ones are processing, document prep, admin, and wire fees. There are also draw fees each time you access your own rehab money, extension fees if your project runs long, and sometimes an extra charge added to your payoff on the back end. Ask for every fee in writing before you commit.
What should I look at besides rate and fees when choosing a lender?
Reliability. If a lender quotes you a great rate and then can't fund at closing, that lender just cost you the deal. Ask how many loans they've funded in your market, ask for references, and ask what happens if the appraisal comes in low.

Want the Real All-In Cost on Your Next Loan?

Send me your scenario and I'll shop it across my lender network and lay out the true cost of each option, every fee included. No surprises at the closing table. For a baseline, the fix and flip loan page shows every program I broker with the rate, the points and the down payment side by side.

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