How private lenders price a loan: rate, points and fees
How private real estate lenders set interest rates, origination points and fees, what drives pricing up or down, and how pricing works when a capital partner funds the loan.
A private real estate loan has three main price components: the interest rate, the origination points charged at closing, and other fees. Together they determine what the borrower pays, what the lender earns, and, when the loan is funded by a capital partner, how the economics are split.
This guide explains each component, what drives pricing, how to compare loans with different structures, and how pricing works when someone else's capital funds the loan. All figures are hypothetical examples, not market rates.
The three components
Interest rate
The annual rate charged on the outstanding balance. Most short-term private loans (bridge, fix and flip, construction) are interest-only, with principal repaid at maturity. Interest may be charged on the full loan amount or only on funds actually drawn, which matters on construction loans with a holdback.
Origination points
Points are an upfront fee, expressed as a percentage of the loan amount. One point = 1% of the loan. On a $500,000 loan, 2 points is $10,000, usually deducted from the loan proceeds or paid by the borrower at closing.
Points compensate the lender for sourcing, underwriting and closing the loan, and they're earned regardless of how long the loan stays outstanding. That makes them especially important on short-term loans that may be repaid early. When a loan is sold or funded by a capital partner, the lender often keeps the points; see what a whole loan sale is.
Other fees
Common fees include underwriting or processing fees, document preparation, draw or inspection fees on construction loans, extension fees, and legal fees. Third-party costs (appraisal, title, insurance) are usually passed through to the borrower at cost.
Fees should be disclosed clearly on the term sheet and described consistently in the loan documents.
What drives pricing
Lenders price for risk, cost of capital and the work involved. The main factors:
| Factor | Usually lowers price | Usually raises price |
|---|---|---|
| Leverage (LTV, LTC, loan-to-ARV) | Lower leverage | Higher leverage |
| Borrower experience | Many similar completed projects | First-time or limited experience |
| Project type | Light renovation, stabilized property | Ground-up construction, heavy rehab |
| Property and market | Liquid, well-understood market | Rural, unusual or thin markets |
| Loan size | Larger loans (fixed costs spread further) | Very small loans |
| Term and exit | Short term, clear exit | Longer term, uncertain exit |
| Lien position | First lien | Junior lien |
| Speed | Standard timeline | Rush closings |
Most lenders publish a pricing grid for their core program and adjust from there. Exceptions to the grid should be documented with a reason.
Comparing loans with different structures
A loan with a lower rate and more points isn't necessarily cheaper than one with a higher rate and fewer points. It depends on how long the loan is outstanding.
Worked example
Hypothetical figures, for illustration only. Two offers on a $400,000 interest-only bridge loan:
| Offer A | Offer B | |
|---|---|---|
| Interest rate | 10% | 11% |
| Points | 3 | 1 |
| Points in dollars | $12,000 | $4,000 |
| Monthly interest | $3,333 | $3,667 |
Total cost to the borrower, ignoring other fees:
| Loan repaid after | Offer A | Offer B | Cheaper |
|---|---|---|---|
| 6 months | $32,000 | $26,000 | B |
| 12 months | $52,000 | $48,000 | B |
| 24 months | $92,000 | $92,000 | Equal |
The points difference ($8,000) is recovered by the lower rate at $333 a month, so the break-even is 24 months. For a borrower planning to sell in under a year, Offer B is cheaper. For the lender, Offer A front-loads income, which protects its economics if the loan is repaid early.
That's why many lenders also use minimum interest or exit fees to protect yield on loans repaid quickly.
Yield vs. coupon
The coupon is the stated interest rate. The yield to whoever holds the loan also depends on points, fees, the timing of draws, and how long the loan is actually outstanding. On a short loan, upfront points can add meaningfully to annualized yield; on a long loan, their effect is spread thin.
When you compare your pricing with a capital partner's target return, compare yield on the capital deployed, not just the coupon.
Pricing when a capital partner funds the loan
When a capital partner funds a loan you originate, the borrower's pricing stays the same, but the economics are split. A common structure:
- The capital partner receives the interest on the loan (or an agreed rate, with any difference retained by the lender as a spread, depending on the arrangement).
- The lender keeps origination points and fees, which compensate it for sourcing, underwriting and closing.
- Any placement or arrangement fee comes out of the lender's share.
The key is to set borrower pricing that works for both sides: an interest rate that meets the capital partner's target, and points that pay the lender for its work. If the rate is below what any partner will accept, the loan won't place, no matter how good the borrower is.
Worked example
Hypothetical figures, for illustration only. A $500,000 loan at 11% interest with 2.5 points:
- Borrower pays 2.5 points at closing: $12,500
- The capital partner funds the full $500,000 and receives the interest
- The lender keeps the points, less any placement fee. If a hypothetical placement fee of 0.5 points ($2,500) applies, the lender keeps $10,000 without any of its own capital in the loan.
Practical tips
- Know your capital before you quote. Price with the capital partner's criteria in mind, so you aren't renegotiating after the borrower has agreed.
- Price consistently. A grid and documented exceptions make your loans easier for partners to evaluate.
- Disclose everything. Clear term sheets avoid disputes and make files easier to fund.
- Protect early repayment with minimum interest or exit fees where appropriate and permitted.
- Check legal limits. Usury laws and fee rules vary by state and loan type; business-purpose loans may be treated differently from consumer loans. Consult counsel on your program.
Key takeaways
- Loan pricing combines the interest rate, points and other fees.
- Pricing reflects leverage, borrower experience, project type, market, size, term and lien position.
- Compare structures by total cost over the expected hold, not the rate alone.
- When a capital partner funds the loan, the rate typically goes to the partner and the lender earns points and fees.
How Lender Capital fits
On Lender Capital, you originate the loan, set the borrower's pricing and keep the relationship. A capital partner whose criteria fit funds the whole loan at closing. You pay a placement fee out of your origination points, and only when the loan funds, so you can earn on loans beyond your own balance sheet.
Have a loan you can’t fund?
Lender Capital places whole, first-lien loans with capital partners who fund the entire loan. You pay only when it funds.