Points and origination fees explained

Investors obsess over interest rates and underweight points — but on a six-month flip loan, the points can cost more than the interest. Here is how to think about them correctly.

What a point is

One point equals 1% of the loan amount, charged at closing. Two points on a $200,000 loan is $4,000. Points paid to the lender are called origination points; a broker may also charge points for arranging the loan. They are a one-time, up-front cost — not an ongoing rate.

Points vs. rate on short-term loans

On a long-term loan, the interest rate dominates your cost because you pay it for years. On a short-term loan — a 6-to-18-month flip or bridge — the math flips. You pay the points once, up front, no matter how fast you exit, so they can easily outweigh a few months of interest.

Comparing offers the right way

To compare two loan offers, add up the total dollars you will actually pay over your expected hold: origination points, interest for the months you plan to hold, and any lender fees. A loan with a slightly higher rate but fewer points can be cheaper on a fast project — and vice versa on a long hold.

• Add origination points (one-time, up front)
• Add interest for your realistic hold period
• Add fixed lender/processing fees
• Compare the total dollar cost, not the headline rate

Frequently asked questions