Turning Terms into Returns — Part 4: Points vs. Rate — Which One Actually Costs More?

When comparing hard money lenders, the interest rate gets the most attention. It shouldn't. Points are a one-time upfront cost. Rate is an ongoing cost. The relationship between them shifts depending on one variable: how long you hold the property.

The Numbers

Here's a $270,000 loan compared across four structures and two hold periods:

3 Months

At 3 months, the higher rate barely matters — you're only paying it for 90 days. Fewer points upfront wins.

12 Months

At 12 months, the first three structures produce identical total costs — the point savings exactly offset the rate savings. The 2 pts / 11% option wins because it carries both a lower rate and one fewer point than the 3-point option.

The crossover point — where rate starts to matter more than points — falls somewhere between 3 and 12 months depending on the spread between structures.

What This Means in Practice

On a quick flip (3–6 months): Negotiate points down and accept a higher rate. You won't be paying that rate long enough for it to matter.

On a longer project (9–12+ months): Negotiate rate down. Points are a smaller percentage of total cost the longer you hold.

Quoting a lender's rate without knowing your projected hold time gives you an incomplete picture. Total cost of capital — points plus interest over the actual hold period — is the only number that matters when comparing lenders.

RE Data Metrix calculates total financing cost for every lender across your projected hold period — so you're comparing the right number, not just the headline rate.

Analyze your next deal with RE Data Metrix →

Next in the series — Part 5: Deferrals. How deferred points, deferred interest, and drawn funds only can dramatically change your cash-on-cash return.