What are origination points, and are they negotiable on a land loan?

Question

Turnrow Capital · Accepted Answer

One origination point equals 1% of the loan amount, paid to the lender at closing — $5,000 per point on a $500,000 loan. Private land loans typically carry 1–3 points. They are negotiable at the margins, usually by trading against rate: fewer points for a higher rate, or the reverse.

Points are how short-term lenders earn a return on loans that may only be outstanding 12–24 months. A lender cannot recover origination costs through interest on a loan repaid in a year, so part of the economics moves to the front. This is normal; a short-term land loan with zero points and a low rate is usually hiding the cost somewhere else — junk fees, penalties, or an appraisal markup.

Whether to pay points down depends on your hold period. Paying an extra point to cut the rate only pays off if you hold long enough for the monthly savings to recoup the upfront cost — often 18–24 months on short-term paper. Exiting in under a year? Take the higher rate and keep your cash.

Compare lenders on total cost of capital: points plus interest paid plus fees over your realistic hold, divided by loan amount. A quoted rate means nothing in isolation.