Interest Rate vs Points
- Ryan Woodham
- Apr 8
- 4 min read
By Ryan Woodham
"Should I pay more up front or over time?" If you’ve ever looked into financing a real estate deal—whether you're flipping a house, building new construction, or using the BRRRR strategy—you’ve probably come across two key terms: interest rate and points (also called origination fees). These two numbers directly impact your bottom line, so understanding how they work is essential for any real estate investor.
Whether you’re considering private money lending, a bridge loan, or a rental loan, this article will break it down for you in simple terms.
1. What’s the Difference Between Interest Rate and Points?
Let’s start with the basics.
Interest Rate: This is the ongoing cost of borrowing money, expressed as a percentage of the loan amount. It’s what you pay over time—monthly or quarterly—as long as the loan is active.
Points (Origination Fees): Points are upfront costs charged by a lender to originate the loan. Each point typically equals 1% of the loan amount. For example, if you borrow $200,000 and the lender charges 2 points, that means you’ll pay $4,000 at closing.
Think of points as the cost to get into the loan and the interest rate as the cost to stay in it.
2. When Should You Choose a Lower Rate vs Lower Points?
This depends on how long you plan to hold the loan and your overall investment strategy. How long you plan to hold the property should dictate the loan choice and whether you opt for a lower rate or lower points.
Short-Term Investors (like fix-and-flippers or those using bridge loans): You may benefit from choosing a loan with higher interest rates but lower points. Since you’ll be in and out of the project quickly, you won’t pay as much interest over time—but you’ll save by not paying high fees up front. If you only hold the property (and loan) for 2 months you may be able to get out of the loan with only paying 2 points in the rate. Most short term loans have interest only terms that are annualized, meaning if you were charged 12% for 12 months you pay 1% a month.
Long-Term Investors (like rental property owners or BRRRR investors): You might prefer a lower interest rate even if it comes with higher points. Over several years, a lower rate can lead to significant savings that outweigh the upfront cost.
This should help explain the differences:
Option | Interest Rate | Points | Loan Term | Total Cost (Est.) |
A | 12% | 1 point | 6 months | Lower upfront cost |
B | 7% | 3 points | 10 years | Lower long-term cost |
To choose the best option, calculate your break-even point—the point in time when the money saved from a lower rate makes up for the extra upfront cost in points.
3. Comparing Interest-Only Loans vs Amortized Loans
Loan Type | Monthly Payment | Principal Reduction | Balloon Payment | Best For |
Interest-Only (Short-Term) | Lower | None | Yes | Fix & Flips, BRRRR (before refi) |
Amortized (Long-Term) | Higher | Yes | No | Long-Term Rentals |
Understanding how interest is charged is just as important as knowing the rate itself. Depending on the type of loan—short-term or long-term—your payments can look very different.
Interest-Only Short-Term Loans (Bridge Loans): These loans are typically used for flips or short BRRRR holds. You only pay interest each month, with no reduction in the loan balance until the balloon payment (the full principal) is due at the end of the term. This structure keeps monthly payments low but requires a strong exit plan, like a sale or refinance.
Amortized Loans (Long-Term Rental Loans): With a 30-year fixed rental loan, your payment includes both principal and interest. Over time, this reduces your loan balance and builds equity. Monthly payments are usually higher, but you're building long-term wealth and reducing debt as you go.
Choosing between these depends on your strategy:
If you’re holding short-term, interest-only may make more sense.
If you’re building a long-term rental portfolio, amortized loans help you stay cash flow positive while paying down your loan.
4. How Unlocked Capital Helps You Decide the Best Option
At Unlocked Capital Partners, our job is to make financing simple and strategic.
We work with investors at every level—from first-time investment buyers to experienced developers—and tailor each loan to fit their goals. Whether you need a fix-n-flip loan, a BRRRR rental loan, or private money lending for a unique project, we’ll walk you through your options and explain how points and rates affect your return on investment.
Because we’re a broker, not a direct lender, we shop your deal to multiple lenders and help you compare real offers—not just theoretical ones. Our goal is to help you make smart financing decisions that align with your exit strategy, timeline, and cash flow needs.
Final Thoughts
Understanding the trade-off between interest rates and points can save you thousands of dollars and help you grow your real estate portfolio more effectively. Whether you’re working on your first deal or your fiftieth, it’s always worth asking:
“Should I pay more upfront or over time?”
We’re here to help you answer that.
👉 Ready to find the best financing for your next deal? Send us a message or call to speak with us today.
Let’s build something great together.
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