If you’ve explored hard money loans for real estate investments, you’ve likely come across the term “points.” Understanding why lenders charge points and how they fit into the lending process is essential for making informed borrowing decisions. In this post, we’ll dive into what points are and why they play a critical role in hard money lending.

What Are Points?

Points, in the context of hard money loans, are upfront fees paid by the borrower to the lender at closing. A point is typically equal to 1% of the loan amount. For example, if you are borrowing $200,000 and the lender charges 2 points, you’ll need to pay $4,000 upfront in points.

Why Do Lenders Charge Points?

Hard money loans are short-term, high-interest loans often used by real estate investors for projects such as fix-and-flips, bridge financing, or quick acquisitions. Given the unique nature of these loans, points serve several purposes:

1. Risk Compensation

Hard money loans are generally offered to borrowers who may not qualify for traditional financing or need funding quickly. This represents higher risk for the lender. To offset the risk, lenders charge points upfront as compensation. Since the loan term is shorter, collecting interest alone may not fully cover the potential risk if the borrower defaults, so points serve as an additional safeguard.

2. Short-Term Profitability

Unlike traditional mortgages, which are typically repaid over 15-30 years, hard money loans are short-term—often between 6 to 24 months. Lenders don’t have the luxury of earning interest over an extended period. Charging points allows them to earn a significant portion of their profit upfront, ensuring the loan remains worthwhile even if it is repaid quickly.

3. Covering Origination Costs

Every loan requires administrative work, from underwriting to legal documentation. Charging points helps lenders recover these costs. While some costs may be nominal, others—such as title searches, appraisals, or processing fees—can be significant. Points ensure the lender isn’t taking a loss on these services.

Points Are Part of the Hard Money Landscape

Points are a standard feature in hard money loans because they protect lenders, cover operational costs, and ensure profitability in short-term deals. For real estate investors, understanding why lenders charge points and how they impact the overall cost is key to making smart borrowing decisions. Always consider both the interest rate and the points when evaluating your financing options.

Contact Our Hard Money Loan Team

Ready to get started? Get in touch with our hard money loan lender team to learn more about how our hard money loans can support your residential real estate investments. Let us help you unlock the potential of your next property venture with the speed and flexibility that only Murk Investments can provide.

Contact our San Deigo Hard Money Loan Lender Team today or call us at 858-242-2601 for a fast quote. Let’s collaborate and turn your real estate visions into reality!

At Murk Investments, our greatest achievement is helping our clients provide housing and business opportunities across San Diego County, Coachella Valley, and Los Angeles County. If you’re looking for a reliable partner for your hard money loans, look no further than Murk Investments, a trust hard money loan lender.