Points vs. Rate: How to Compare Hard Money Quotes by Your Real Hold Time (and What It Does to Your MAO)

Why the Lowest Rate Is Not Always the Cheapest Loan

You have two hard money quotes on a $250,000 loan. Lender A offers 3 points at 10% interest, and Lender B offers 1 point at 12%. Most flippers pick Lender A by reflex, because 10% looks cheaper than 12% and the rate is the number everyone talks about. That reflex can cost you thousands, and whether it does depends almost entirely on how long you actually hold the property.

Points and interest behave differently. A point is 1% of the loan amount, paid once at closing. It is a fixed cost that stays the same whether you sell in four months or fourteen. Interest is a monthly cost that keeps running as long as the loan is open. On that $250,000 loan, Lender A charges $7,500 upfront and about $2,083 a month interest-only, while Lender B charges $2,500 upfront and $2,500 a month. Cheap points reward a short hold, and a low rate rewards a long one.

To compare quotes honestly, add up the whole cost over your expected hold: total financing cost = points + (monthly interest x months held) + fees. The fees are where quotes that look identical start to separate. Ask every lender to list these in writing:

• Processing, underwriting, or doc prep fees charged at closing
• Draw and inspection fees, often $150 to $300 each time you pull rehab funds
• Minimum-interest clauses that bill you for three to six months even if you sell sooner
• Extension fees, usually charged as a percentage of the loan to push the maturity date

The last two items matter most because they change with your timeline. A minimum-interest clause wipes out the advantage of a quick flip, and an extension fee punishes a slow one. If your contractor runs six weeks late on a 6-month loan, you could pay a fresh extension fee on top of the extra interest. The real question is never "which rate is lower." It is "which loan costs less at the hold time I will realistically hit, including the delay I should plan for."

Worked Example: Finding the Break-Even Month Between Two Quotes

Say you're borrowing $200,000 on an interest-only hard money loan and two lenders send quotes. Lender A wants 3 points at 10% interest. Lender B wants 1 point at 12% interest. Before you pick the lower rate, translate each quote into dollars: what you pay at closing and what you pay every month after that.

Lender A's 3 points cost $6,000 upfront (3% of $200,000). Monthly interest is $200,000 x 10% / 12, or about $1,667. Lender B's single point costs $2,000 upfront, and monthly interest is $200,000 x 12% / 12, or $2,000. So Lender A costs $4,000 more on day one, while Lender B costs about $333 more every month you hold the loan.

The break-even month is the upfront gap divided by the monthly gap. Here that's $4,000 / $333, which comes out to 12 months. Before month 12, Lender B is cheaper because you haven't held long enough for A's lower rate to pay back its extra points. After month 12, Lender A pulls ahead.

Run the totals at two realistic hold times to see it clearly:

• 6-month hold: Lender A is $6,000 + (6 x $1,667) = $16,000. Lender B is $2,000 + (6 x $2,000) = $14,000. Lender B saves you $2,000.
• 12-month hold: Lender A is $6,000 + (12 x $1,667) = $26,000. Lender B is $2,000 + (12 x $2,000) = $26,000. It's a wash.

The takeaway is simple. The shorter your realistic hold, the more points hurt you, because you pay them in full no matter how fast you sell. Most cosmetic flips close out well inside 12 months, so the "cheaper" 10% loan would actually cost you more on a typical project. Base the comparison on the hold time you actually expect, including permits, contractor delays, and days on market. Don't use the best-case timeline you hope for.

Worked Example: Feeding Financing Cost and a Timeline Slip Into Your MAO

Take a flip with a $320,000 ARV and a $55,000 rehab. The quick 70% rule gives you $320,000 x 0.70 = $224,000, minus $55,000 in repairs, for an MAO of $169,000. That shortcut is fine for screening, but it hides every cost inside one percentage. To see what your financing actually does to your offer, build the MAO line by line.

• ARV: $320,000
• Rehab: minus $55,000
• Selling costs at 8%: minus $25,600
• Buying costs: minus $4,000
• Financing (Lender B, 6-month hold): minus $14,000
• Other holding ($900/month x 6 for taxes, insurance, utilities): minus $5,400
• Target profit: minus $35,000

That leaves an MAO of $181,000, which is $12,000 higher than the 70% rule. On this deal the detailed math gives you more room to bid. It also shows you exactly which assumptions that room depends on, and the biggest one is time.

Now suppose permits drag, or the house sits on the market an extra month, and your hold stretches to 9 months. Lender B's interest adds roughly $6,000 more. Holding costs climb by $2,700 (three more months at $900). Many hard money notes also charge an extension fee once you pass the original term, so add $2,000. That totals $10,700 in new costs, and your MAO drops to $181,000 minus $10,700, or $170,300. Most of your edge over the 70% rule is gone.

The fix is to test the slip before you make an offer, not after you close. FlipSmrt's MAO calculation lets you enter your own hold time, lender terms, and monthly holding costs. You can run the deal at 6 months, then at 9, and see both numbers side by side. If the 9-month version still works at your offer price, you have a cushion. If it doesn't, offer closer to the lower figure or pick a loan with cheaper extensions.

Edge Cases That Change the Comparison

Break-even math assumes both lenders charge interest the same way, and many don't. With Dutch interest, you pay on the full loan from day one, including rehab funds still sitting in a holdback. On a $200,000 loan with a $60,000 rehab holdback at 11%, Dutch interest costs about $1,833 a month. A non-Dutch lender charging only on the $140,000 actually drawn costs about $1,283 a month until draws begin, so that $550 monthly gap can erase a one-point advantage in under two months.

Read the payoff terms before you trust any break-even month. Some lenders impose minimum interest, often three to six months, so paying off in month two still costs you several months of interest you never used. Others carry a prepayment penalty that does the same thing in different language. If you plan a fast cosmetic flip, a minimum-interest clause can make the low-rate quote the expensive one, no matter what your spreadsheet says.

Term length matters too. A 6-month term on a project that realistically needs eight months to sell will trigger an extension fee, commonly a point or more per extension. Add that fee to your comparison in the month it would hit, not as an afterthought. A 12-month term at a slightly higher rate is often cheaper once you price in a realistic slip.

Points rolled into the loan versus paid at closing also distort the math. Rolling 2 points ($4,000 on $200,000) preserves your cash, but you then pay interest on those points every month, and some lenders calculate the points on the larger balance. Put both quotes on the same treatment before comparing them, or you are comparing two different loans.

A BRRRR exit changes the clock entirely. Your hold ends when the refinance closes, not when a buyer closes, and refinance timing depends on seasoning rules and appraisal scheduling. If your refinance lender requires six months of seasoning, a low-point quote built for a short hold loses its edge, and the lower rate usually wins.

Mistakes That Quietly Eat Flip Profit

Most flips that lose money are not lost on the purchase. They lose a few thousand dollars at a time through financing assumptions nobody checked. The figures below use a $240,000 loan at 12% interest ($2,400 per month) and $650 per month in other carrying costs. Those numbers match the quotes compared earlier, so you can see what each mistake costs in real dollars.

Estimating hold time from the rehab schedule alone. Your contractor says four months, so you price four months of interest. But the house still has to be listed, shown, put under contract, and closed. That easily adds 2.5 to 3 months. Three uncounted months cost $7,200 in interest plus $1,950 in carrying costs, a $9,150 hit you never planned for.

Comparing rates without a full fee sheet. A quote of "1 point at 12%" tells you almost nothing about what you will pay at closing. Ask every lender for an itemized list before you compare. A typical sheet might include a $995 underwriting fee, a $750 processing fee, $500 in document prep, and five rehab draws at $150 each. That adds $2,995 that never showed up in the headline rate, and it can flip which quote is actually cheaper.

Forgetting holding costs beyond interest. Interest is the cost lenders talk about, but the house also needs property taxes, a vacant-property insurance policy, utilities, and lawn care while you own it. At $650 per month over a realistic seven-month hold, that is $4,550. Leave it off your spreadsheet and your projected profit is overstated by exactly that amount.

Setting the offer before choosing the lender. If you budget $15,000 for financing and the loan you actually close with costs $21,000, the $6,000 gap comes straight out of your profit. Your MAO was too high from the start. Get firm quotes and a fee sheet first, then build financing into your offer math so the number you submit already reflects the real cost of the money.

FAQ: Hard Money Points, Rates, and Hold Time

How long should I assume my hold will be? Start with your contractor's rehab schedule, then add 30 to 45 days to list and go under contract and another 30 to 45 days to close with the buyer. A 3-month rehab realistically becomes a 5 to 6 month hold. Add one more month as a buffer for permits, inspections, or a buyer's loan falling through. Price the loan on that padded number, not the best-case timeline.

Are points negotiable? Often, yes, especially once you have a track record or bring a lender repeat business. Some lenders will drop a point in exchange for a slightly higher rate, a larger down payment, or a second deal. Ask for two or three structures from the same lender so you can compare them side by side.

Should I pay more points if I am confident in a fast flip? Only if your hold lands well past the break-even month. On a $200,000 loan, 3 points at 10% costs $4,000 more upfront than 1 point at 12%, but saves about $333 a month in interest. That puts break-even at 12 months, so on a 5-month flip the higher-point loan loses. Paying more points to get a lower rate rarely makes sense on short holds.

Does the cheaper loan change my MAO or just my profit? It changes both, depending on how you calculate MAO. The simple 70% rule buries financing inside the 30% margin, so it ignores your loan terms. A full MAO that subtracts buying, holding, and selling costs moves dollar for dollar. Cut financing costs by $3,000 and your maximum offer rises by $3,000 at the same target profit.

How do I quickly rerun the numbers when a lender quote changes? Rebuilding a spreadsheet for every new term sheet is how errors creep in. You can run the property in FlipSmrt, adjust the holding and financing inputs, and get an updated MAO and ROI in a few minutes. Your first 3 analyses are free, which is enough to test two competing quotes on a live deal.