Why Hard Money Rates Are Higher
Hard money loans carry higher interest rates than conventional mortgages for several interconnected reasons:
Risk premium. Hard money lenders accept borrowers and properties that conventional lenders reject. This elevated risk is compensated through higher rates.
Short duration. The cost of originating and servicing a loan is relatively fixed regardless of term length. On a 12-month loan, those fixed costs are amortized over a much shorter period than a 30-year mortgage.
Capital source. Hard money lenders often fund loans from private investor capital, which itself carries a return expectation of 8–12%. The lender must charge more than their cost of capital to operate profitably.
Speed premium. The ability to close in 7 days has real value. Borrowers pay a premium for that speed.
Understanding the Components of Hard Money Pricing
Interest Rate
The stated annual interest rate, typically ranging from 9–14% depending on:
- Loan-to-value ratio (lower LTV = lower rate)
- Borrower experience (more experience = lower rate)
- Property type and condition
- Loan term and size
- Market conditions
Origination Points
Points are an upfront fee charged at closing, expressed as a percentage of the loan amount. One point = 1% of the loan.
Most hard money lenders charge 1–3 origination points. On a $300,000 loan at 2 points, that's $6,000 paid at closing.
Points are a significant component of the total cost of capital, especially on short-term loans.
Other Fees to Watch For
| Fee | Typical Range | Notes |
|---|---|---|
| Origination points | 1–3% | Paid at closing |
| Appraisal fee | $400–$800 | Third-party cost |
| Processing fee | $500–$1,500 | Lender admin fee |
| Draw fees | $150–$300 each | For construction loans |
| Extension fee | 0.5–1% | If loan term is extended |
| Prepayment penalty | Varies | Some lenders charge minimum interest |
Annual Percentage Rate (APR) vs. Stated Rate
The APR accounts for all fees and costs, not just the stated interest rate. On a 12-month hard money loan at 11% with 2 points, the effective APR is closer to 13–14%.
Always calculate the total cost of capital — not just the stated rate — when comparing lenders.
How to Get the Best Rate
Lower your LTV. Bringing a larger down payment reduces lender risk and typically unlocks lower rates.
Demonstrate experience. Lenders reward track records. Document your previous deals with photos, HUD statements, and profit/loss summaries.
Choose the right lender. Rates vary significantly between lenders. Shop 2–3 options for significant deals.
Build a relationship. Repeat borrowers with strong track records often receive preferential pricing.
Have a clean deal. A well-documented deal with realistic numbers moves through underwriting faster and may qualify for better terms.
Does the Rate Actually Matter?
On a short-term fix-and-flip, the interest rate is often less important than people think. Consider a $300,000 loan at 11% vs. 9% on a 6-month project:
- At 11%: $16,500 in interest
- At 9%: $13,500 in interest
- Difference: $3,000
Focus on total deal profitability, not just the rate in isolation.
Use our loan calculator to model your total financing costs on any deal.