A 10% rate with 2 points is not the same deal as 11% with no points. The rate is the number everyone fixates on, and it is the wrong one to lead with. Two offers can show similar rates and cost you wildly different amounts once you add in points, fees, and how long you hold the loan. Here is how to compare lenders the right way, and the fees most of them will never volunteer.

Points vs. Rate Comes Down to Hold Time

An origination point (a fee equal to 1% of the loan amount, paid at closing) is a direct, upfront cost. 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 offset with a higher rate. Others charge more points for a lower rate. Neither is automatically better. Your hold time decides.

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

Run 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 the cheaper money even though the rate is higher. The two break even right around the twelve-month mark, and only past a year does Option A's lower rate pull ahead. Since most flips run six to nine months, fewer points usually wins, but the only way to know for sure is to run it against your real hold time.

Always calculate total cost of capital over your expected hold period, not just the interest rate. And keep in mind this is a simplified comparison. Whether your loan is standard or Dutch interest changes what you actually pay, which I will get to below.

The Add-On Fees That Change the Math

This is where investors get quietly bled, because these rarely come up unless you ask. Here are the ones I check for on every term sheet:

  • Prepayment penalties: a charge for paying off early, sometimes a minimum interest amount you owe no matter how fast you exit. If your plan is to be in and out fast, this one stings.
  • Extension fees: many lenders give a six-month term, then charge 1% or 2% to extend. It is a buyer's market and properties are sitting longer, so know this number before you sign. There is a real chance you will need it.
  • Processing, doc prep, admin, and wire fees: small charges sprinkled on top of points that add up fast.
  • Draw fees: $250 to $300 or more every time you request a draw (your rehab money released in stages as you finish work). That is a fee to access your own money.

And the sneakiest one: a back-end origination fee. The term sheet shows 1% and you assume that is the cost of the loan. But some lenders quietly add another 1% or 2% on the back end, so when you pay off, it comes straight out of your profit and you never saw it coming. If you do not read the full terms, you will not 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 is standard or Dutch interest. When I ask investors who are shopping multiple lenders if they have even asked about this, most of them tell me they do not know what the difference is. It matters, because it changes your real cost.

Here is the quick way to tell which one you are being quoted. On Dutch interest, you have one flat monthly payment for the entire life of the loan. It does not move. That is because you are paying interest on the full loan amount from day one, including rehab money you have not even touched yet.

On standard interest, your payment starts lower and rises as you draw from the rehab budget. Your rehab money sits as a lender holdback on the closing statement, so you have access to it, but you only pay interest on what you have actually drawn. Pull $20,000 of a $70,000 rehab budget and you are only paying on that $20,000, not the full amount. For a full breakdown, here is Dutch vs. standard interest explained.

Reliability Is Part of the Price

Rate and fees matter, but so does whether the lender can perform. A lender who quotes you a great rate and then finds a reason not to fund at the closing table has cost you the entire deal, your earnest money, and your reputation with the seller. The cheapest quote in the world is worthless if it falls apart at the worst possible moment.

Before you commit, ask how many loans they have funded in your market, ask for references, and ask what happens if the appraisal comes in low. Price is one variable. Reliability is the other, and on a time-sensitive deal it is often the one that matters most.

How I Compare Lenders for You

This is the part of the job I love. When a deal comes in, I am not picking from a list of three. I narrow a network of a few hundred lenders down to the handful that genuinely fit your deal, pull real quotes, and lay them out with the full cost included, the points, the rate, the fees most people never think to ask about, and the structure. Then I show you the strongest options with the real all-in number, not the cleaned-up version on the front of the term sheet. You should never have to wonder what a loan is truly 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 the real cost. A loan with a higher rate and zero points can be cheaper than a lower rate with two points if you only hold it a few months. You have to compare the total cost of capital over your actual hold period, not just the rate.
What is a prepayment penalty on a hard money loan?
It is a charge for paying the loan off early, sometimes structured as a minimum interest amount you owe no matter how fast you exit. Many borrowers do not realize it is in their loan until they try to pay off. Always ask whether a prepayment penalty exists before you sign.
How can I tell if a loan is Dutch or standard interest?
Look at the payment. On Dutch interest you pay one flat monthly payment for the whole life of the loan, including interest on rehab money you have not used yet. On standard interest your payment starts lower and rises as you draw from the rehab holdback, because you only pay on the balance you have actually used.
What hidden fees do hard money lenders charge?
Common ones are processing, document prep, admin, and wire fees, per-draw fees to access your own rehab money, extension fees if your project runs long, and in some cases 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. A lender who quotes a great rate and then cannot fund at closing has cost you the deal. Ask how many loans they have funded in your market, ask for references, and ask what happens if the appraisal comes in low.

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