Hard Money Points and Fees: The Real Cost Stack
The real cost of hard money is the stack, not the rate: points, draw and extension fees, accrual method, and comparing loans over your actual holding period.
Two hard-money quotes with the same interest rate can differ by thousands of dollars on the same project. The difference lives in the stack — points, fees, accrual method, and payoff mechanics that headline rates exclude. Short-term money is priced in pieces, and lenders know borrowers screen on the piece that matters least over a six-to-twelve-month hold. This article itemizes the stack and shows how to compare loans on the only number that matters: total cost over your realistic hold. Where hard money sits relative to bridge products generally is mapped in /blog/hard-money-vs-bridge-loans; this is the cost anatomy underneath both. Scope: business-purpose loans on non-owner-occupied property.
The stack, item by item
Origination points. A percentage of the loan, charged at closing. Ask what the percentage applies to: the total commitment including any renovation holdback, or the initial advance only. On heavy-rehab loans the difference between those two bases is large, and lenders use both conventions.
Lender fees. Underwriting, processing, and document fees — flat charges that vary widely between shops and are commonly negotiable at the margin, but only if they are on the term sheet where you can see them.
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Third-party costs. Valuation — a full appraisal, a broker price opinion, or a desktop review depending on the lender — plus title, escrow, and sometimes the lender's legal costs passed through to you.
Draw costs. Renovation holdbacks are disbursed through draws, and each draw commonly carries a fee plus an inspection cost. A project planned as many small draws pays this line more times than one planned as a few large ones.
Extension fees. Priced per extension, as a flat fee or a percentage of the loan. If your timeline carries any permit, labor, or sale risk, this line belongs in your expected cost, not in a contingency you assume away.
Payoff mechanics. Minimum-interest clauses guarantee the lender some months of interest regardless of payoff date. Some shops charge exit fees. Payoff statements carry per-diem conventions and interest-through dates that can add days of interest depending on when in the month you close the payoff.
| Line item | When it is charged | What to ask |
|---|---|---|
| Origination points | Closing | Points on the full commitment, or on the initial advance |
| Underwriting and document fees | Closing | Flat amounts, in writing, on the term sheet |
| Valuation, title, legal | Closing | Which valuation product, whose vendors, what passes through |
| Draw and inspection fees | Each draw | Fee per draw, inspection cost, expected draw count |
| Extension fees | At each extension | Cost, conditions, and any rate effect |
| Minimum interest and exit fees | Payoff | Months guaranteed, exit fee, per-diem convention |
Accrual method: the biggest hidden line
On loans with renovation holdbacks, ask whether interest accrues on the amount actually drawn or on the full committed balance — full-balance accrual is sometimes called Dutch or full-boat interest. On a loan where a large share of the commitment sits undrawn for months, paying interest on it anyway is a material cost that never appears in the rate. Some lenders use one method, some the other, and hybrid conventions exist. None of them is hiding it, but few volunteer it, and this single question separates quotes that look identical on paper.
No APR is coming to save you
Consumer loans compress cost into a disclosed APR; business-purpose loans generally do not owe you that arithmetic. These are term-sheet products — the standardized consumer disclosures generally do not apply — so no regulator-formatted number will roll the points, fees, and accrual method into one comparable figure for you. Either you build the all-in number yourself or you are comparing marketing. That is not a complaint about the product; it is part of the deal you accept in exchange for speed and flexibility, and it is why the model below is not optional.
All-in cost over the realistic hold
The comparison that works is arithmetic, not adjectives. For each term sheet, total over your realistic hold: points and fees at closing, interest month by month under that lender's accrual method, draw costs at your expected draw count, and one extension if your timeline has risk. Divide by months held if you want a comparable monthly figure.
A purely hypothetical illustration of the shape: because points are paid once and rate is paid per month, two points on a six-month hold works out to roughly four points on an annualized basis — so on a short hold, a loan with a somewhat higher rate but meaningfully lighter closing costs is commonly the cheaper loan overall. The shorter the hold, the more the fixed costs dominate; the longer the hold, the more the rate and the accrual method do. Your own numbers decide, and only this arithmetic reveals which side of the line your project sits on. Run the same model at your pessimistic timeline too — nine months instead of six — because the ranking of two loans can flip once an extension fee and three more months of interest enter the total. The renovation-economics context for these numbers — budgets, draws, and exit math — is laid out in /blog/fix-and-flip-financing-guide.
Why the cheapest headline is often the most expensive loan
Short-term lending is competitive on exactly one number, the advertised rate, because that is the number borrowers screen on. Pricing migrates to the lines borrowers do not screen on: accrual method, draw costs, extensions, payoff mechanics. This is market structure more than deception, but the effect on the unwary borrower is the same, and it rewards the one who compares term sheets line by line on an identical scenario. That is the same stated-terms discipline we apply to lender evaluation generally, documented in /blog/how-we-evaluate-investor-lenders: written terms, same file, nothing extrapolated from marketing.
The term sheet is a draft until it is the settlement statement
The stack you negotiated is only real if it survives to closing. Fees drift between term sheet and settlement statement — a processing fee that grew, a document fee that appeared, third-party costs that migrated from estimate to invoice. Compare the settlement statement line by line against the term sheet before the wire goes out, and question every line that moved. Reputable shops fix drift when asked. The ones that will not are telling you, before you are committed, how draw administration is going to go later.
Common mistakes
- Comparing rates and calling it comparing loans.
- Not asking whether points apply to the full commitment or the initial advance.
- Discovering full-balance accrual after closing, on a loan that sat half-undrawn for five months.
- Budgeting zero probability of an extension on a renovation with permit risk.
- Skipping the draft payoff statement and absorbing per-diem and through-date charges silently.
- Letting a promised fee waiver live in conversation instead of on the term sheet.
How to verify
- Send each lender the identical scenario and require a line-item term sheet; compare stacks, not rates.
- Ask the accrual method in writing — drawn balance or full commitment — and get the draw fee schedule and inspection cost with it.
- Ask for the extension menu now: cost, conditions, and rate effect, before you need it.
- Build the total-dollars model over your hold, including one extension, before choosing a lender, and keep the model to check against reality.
- At exit, request the payoff statement early, and check minimum-interest, exit fees, per-diem, and the interest-through date against the note. The note controls; the statement should merely restate it.
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