Private Money LendersRead time: 30 seconds
- One point = 1% of loan amount paid at close. Two points on a $400,000 loan is $8,000 in cash you do not get to deploy.
- Break-even on points runs roughly 6–10 months at typical hard-money rates. Shorter hold? Lower points beats lower rate. Longer hold? The opposite.
- Brokers love front-loaded points because their commission is paid at close, not over the hold. That is a real conflict, and it is why broker quotes lean heavy on points.
- The pricing matrix has six rungs, not infinite trade-offs. Most lenders quote in 0.25-point and 0.125-rate increments off a center quote.
- The right question is rarely “what is your rate”. It is “what is your APR at a six-month hold,” which forces points and rate into one number.
What a point actually is
An origination point is one percent of the loan amount, paid in cash at close. Two points on a $400,000 loan is $8,000. The lender deducts it from the wire, so a "$400,000 loan with 2 points" delivers $392,000 in net proceeds while you still owe interest on $400,000 from day one.
That last detail is the part borrowers miss. Points are paid and capitalized — they reduce the cash you get without reducing the principal you owe. On a 12-month hold at 10% APR, a $400,000 loan accrues $40,000 in interest. Add $8,000 in points and your true cost of money is $48,000, or roughly 12% effective APR. That is the right comparison number, not the headline 10%.
The break-even between points and rate
The trade-off is mechanical. Most hard-money lenders publish a pricing matrix that lets the borrower buy down rate with extra points: typically one point bought up moves the rate down by 0.125–0.25 percentage points (12.5–25 bps). The question is whether the rate reduction recovers the cash you fronted before you pay off the loan.
The break-even formula is:
That 48-month break-even is decisive on a hard money loan. If you are going to repay in 6 months on a fix-and-flip, the math says do not pay the extra point — you would recover only 1/8 of the cost. If your loan is a long-term DSCR rental at 30 years, the math says pay the point — you recover the cost in year four and ride 26 more years of lower payments.
Hard money lives in the messy middle. A bridge loan with a 12-month term that you are likely to extend by 6 months stretches the math to 18 months of hold, which is still well short of 48-month break-even on a typical 1-point/0.25-rate trade.
Three scenarios across realistic holds
Scenario A — 6-month fix-and-flip
You are quoted "10% rate, 2 points" on a $300,000 loan. The lender offers a buy-down: 1 extra point gets you down to 9.5%, or 2 extra points to 9.0%.
| Option | Points | Rate | Points cost | 6mo interest | Total cost |
|---|---|---|---|---|---|
| Baseline | 2.0 | 10.00% | $6,000 | $15,000 | $21,000 |
| Buy down 0.5% | 3.0 | 9.50% | $9,000 | $14,250 | $23,250 |
| Buy down 1.0% | 4.0 | 9.00% | $12,000 | $13,500 | $25,500 |
Baseline wins by $2,250 over the half-point buy-down and $4,500 over the full buy-down. On a 6-month flip, never buy points down. The rate reduction is real, but the time is too short to recover the cash. Take the lowest-points option even if the headline rate is higher.
Scenario B — 18-month bridge-with-extension
Same loan, but the project is a heavier-rehab bridge loan running 12 months stated + a 6-month extension. Hold is 18 months.
| Option | Points | Rate | Points cost | 18mo interest | Total cost |
|---|---|---|---|---|---|
| Baseline | 2.0 | 10.00% | $6,000 | $45,000 | $51,000 |
| Buy down 0.5% | 3.0 | 9.50% | $9,000 | $42,750 | $51,750 |
| Buy down 1.0% | 4.0 | 9.00% | $12,000 | $40,500 | $52,500 |
The three columns are now within $1,500 of each other. Baseline still wins narrowly, but the margin is thin enough that other considerations (lender flexibility, draw speed, recourse terms) probably matter more than the price. At 18 months, the points-vs-rate decision is roughly neutral.
Scenario C — 24-month construction loan
Same loan structure, but a 24-month ground-up construction project that runs the full term.
| Option | Points | Rate | Points cost | 24mo interest | Total cost |
|---|---|---|---|---|---|
| Baseline | 2.0 | 10.00% | $6,000 | $60,000 | $66,000 |
| Buy down 0.5% | 3.0 | 9.50% | $9,000 | $57,000 | $66,000 |
| Buy down 1.0% | 4.0 | 9.00% | $12,000 | $54,000 | $66,000 |
At 24 months, the three options are within $0 of each other (the structure breaks even almost exactly at 24 months on a 1-point/0.5%-rate trade). Now the decision is about cash timing, not total cost. If your project has tight closing-cash constraints, take the low-points option and absorb the higher rate over time. If you have surplus closing cash and want lower monthly carrying costs during construction, buy the rate down. The total cost is the same.
If the loan is short, points cost more than they look. If the loan is long, rate matters more than it looks. The break-even sits in the middle, and almost no hard money loan is held that long.
Why brokers love front-loaded points
A real conflict of interest worth naming. When you go through a mortgage broker (correspondent or table-funded), the broker is paid at close. Their compensation typically comes out of the points charged on the loan. A loan with 3 points pays the broker more, today, than a loan with 1 point and a higher rate — even though the higher-rate version costs you the same or less over a short hold.
Some brokers disclose this clearly. Others structure the quote as "your best option" without acknowledging that the lender behind it offered the same loan with fewer points and a slightly higher rate. The fix is to ask explicitly: "What rate is available with one fewer point?" If the broker fumbles the answer or claims it is not available, that is a signal.
The cleanest solution: ask for the lender's direct quote sheet and the broker's markup as separate line items. Most reputable brokers will provide both. The markup might be one full point or as little as 0.25 — either is fine, but you should see it itemized so you know what you are paying for broker service vs lender capital.
How the pricing matrix actually works
Hard money lenders do not negotiate freely on rate. They publish (internally) a pricing matrix with discrete rungs. A typical fix-and-flip matrix looks like this:
| Tier | Rate | Points | FICO floor | LTV cap |
|---|---|---|---|---|
| Tier 1 (best) | 9.50% | 2.00 | 720+ | 90% LTC |
| Tier 2 | 9.75% | 2.25 | 680+ | 87.5% |
| Tier 3 | 10.00% | 2.50 | 660+ | 85% |
| Tier 4 | 10.50% | 2.75 | 640+ | 82.5% |
| Tier 5 | 11.00% | 3.00 | 620+ | 80% |
| Tier 6 (story) | 11.50%+ | 3.50+ | <620 | 75% |
Inside a tier, the borrower can buy down the rate by adding points (typically 0.125–0.25 rate reduction per extra point) or take a rate add for fewer points (the reverse). Between tiers, the differences are driven by credit, leverage, and experience — not negotiation. A 660 FICO borrower asking for Tier 1 rate is going to get a no.
The matrix exists because hard money lenders sell most of their loans to securitization buyers or to private credit funds, both of which have their own pricing curves. The matrix is the lender's translation between borrower risk and the secondary buyer's required yield. Tier compression — the difference between best and worst pricing — widened sharply in 2022–2023 as the cost of capital rose; it has compressed somewhat since.
When to pay points and when to refuse
Pay points when:
- Hold period is reliably 18+ months. Long-term rentals, construction projects with a refinance exit at substantial completion, BRRRR holds where the bridge runs 12–18 months before refi.
- Cash flow during the hold matters more than cash at close. Ground-up construction where every dollar of monthly carry cost reduces your contractor margin tolerance.
- You can buy your way into a better tier. Sometimes 0.25 extra points unlocks a 1-point lower tier of rate, which beats the linear matrix math.
Refuse points when:
- Hold period is 6–10 months. Standard fix-and-flip. The break-even is 4× your hold; you will not recover the cash.
- The quote came from a broker pushing extra points without offering the alternative. Ask explicitly for a lower-points version. If they cannot produce one, get a second quote.
- Closing cash is tight. A $400K loan with 4 points is $16,000 less in your account on closing day — that money could close a contractor deposit, fund the first month of holding costs, or cover an unexpected inspection finding.
APR is the only honest comparison number
If you are shopping multiple lenders, the rate number is misleading. Lender A at "9% with 3 points" and Lender B at "10.5% with 1 point" are not directly comparable until you normalize for hold period and convert to effective APR.
This is the single highest-value question in any rate conversation: "What is your effective APR at a six-month hold?" Most lenders will quote it directly when asked. The ones who will not are signaling that their pricing is opaque on purpose.
We publish our rate cards directly on our pricing page with both the rate and the points for each tier, and we will quote effective APR at your specific hold period in writing. Send a deal with the projected hold and we will reply within four business hours with the full breakdown.
Glossary
A fee equal to 1% of the loan amount, paid at close. Reduces the cash wired to the borrower but does not reduce the principal balance.
The interest rate charged on the outstanding principal, expressed as APR. Distinct from the effective APR, which incorporates points.
The internal grid most hard money lenders use to map borrower attributes (FICO, leverage, experience) to discrete combinations of rate and points. Negotiation happens within tier rungs, not freely.
Paying extra points at close in exchange for a lower rate over the loan term. Economically a prepayment of interest.
The true annualized cost of borrowing once points are amortized over the actual hold period. The right comparison number for shopping quotes.
The number of months at which extra points paid at close equal the cumulative interest savings from the lower rate. Past break-even, the buy-down is net-positive; before it, you lost money.
The portion of the points or rate the originating broker receives as their fee. Required to be disclosed on most loan estimates; ask if you do not see it itemized.
A rate increase taken in exchange for fewer points at close. The inverse of a buy-down; correct move on short holds.
Frequently asked questions
Are points tax-deductible on investment property?
Yes — origination points on investment property loans are deductible as a business expense, typically amortized over the loan term rather than expensed in year one. Consult your CPA; the deduction interacts with depreciation and the choice of cash vs accrual accounting.
Can I roll points into the loan instead of paying cash?
Sometimes. Some lenders will allow points to be financed (added to the loan balance) on bridge and construction products. The trade-off is you accrue interest on the points themselves over the loan term, which makes the buy-down math worse. Cash-paid points are cleaner if you have the closing cash.
Why do hard money points run 2–3% when conventional is 0–1?
Hard money loans have higher origination cost per dollar funded: shorter terms mean the lender amortizes their underwriting and loan-doc cost over fewer interest months, and the loans are not securitizable on standard GSE channels, which raises the cost of capital. The 2–3% point range is the industry-standard offset for those structural costs.
Do points include lender fees and closing costs?
No. Points are a separate line item from underwriting fees, processing fees, doc-prep, appraisal, title, escrow, and recording. A loan with "2 points" still has $2,000–$3,500 of other closing costs. Always ask for the all-in cash-to-close number, not just the points.
What is a typical broker fee on hard money?
Broker fees on hard money are typically 1–2 points on top of the lender’s direct pricing. A reputable broker discloses this as a separate line item. If you see a single combined points number with no breakdown, ask for the lender’s direct quote and the broker markup separately.
Can points be refunded if I refinance early?
Generally no. Points are earned at close and are not refunded on early payoff. This is structurally why points are bad on short holds — you cannot reclaim the prepayment if circumstances change.
Does PML negotiate on points?
Within tier, yes — we will trade rate for points at the published matrix increments. Between tiers, no — a borrower at 680 FICO is priced at Tier 2 even if they prefer Tier 1’s headline rate. The tier compression is driven by our cost of capital, not by negotiation room.
Is there ever a zero-points loan in hard money?
Rarely. Zero-points loans exist on some commercial multi-family and DSCR rental products where the longer hold makes the higher rate worthwhile, but on bridge and fix-and-flip the minimum is typically 1.0–1.5 points. The rate add to hit zero points is usually 1.5–2 percentage points, which only pays off past a 4-year hold.
Get a real quote with rate and points itemized.
Send us the loan amount, the property, and your projected hold. We will reply with the full pricing matrix — rate, points, and effective APR at your hold — in writing within four business hours.