The interest rate is only one part of the cost of financing a fix and flip project. Investors may also encounter points and other lender fees when reviewing a loan. Understanding these separate charges is important because the total cost of financing depends on more than the percentage applied to the outstanding balance.
Points are one example of an upfront financing cost. A point represents 1% of the loan amount and is generally paid at closing. Unlike interest, which accumulates during the loan term, points are a one-time charge. The number of points can vary based on the lender, deal size, leverage, and risk profile. Investors should therefore confirm the actual points associated with a specific offer instead of assuming that one standard figure applies to every project.
Other lender fees can also be part of the financing structure. Depending on the lender and transaction, these may relate to underwriting, processing, or administration associated with renovation draws. Some costs may be paid at closing, while others may be associated with individual draws. The timing of a fee can be relevant when calculating the amount of capital needed throughout the project.
This is particularly important when comparing hard money fix and flip loans from different lenders. Two offers may have different interest rates but also different points or fee structures. Looking at the rate alone could therefore provide an incomplete picture of the actual financing expense. Investors can instead list every applicable cost and consider when each payment is due.
The total financing cost combines the various charges associated with borrowing. Interest, points, lender fees, and the length of time the loan remains outstanding can all contribute to that total. Investors evaluating fix and flip loans can use the term sheet to identify each cost component and determine how it fits into the project's overall numbers. This approach makes it easier to compare financing offers on a consistent basis and understand what the loan may actually cost from closing through repayment.
