Hard money lenders typically charge 8% to 15% annual interest, 1 to 4 origination points (each point equals 1% of the loan amount), and several thousand dollars in closing and administrative fees. On top of that, you usually need to bring 25% to 40% of the purchase price as a down payment, because most lenders cap the loan at 60% to 75% of the property’s current value. The exact numbers depend on your experience, the property, and how much equity you have in the deal.
Interest Rates and Loan Term
Annual rates generally fall between 8% and 15% for first-position loans, where the hard money lender holds the primary claim on the property. Second-position loans run higher, often 12% to 14% or above, because another lender gets paid first if things go wrong. Rates are usually fixed for the life of the loan, so your monthly payment does not move.
Terms are short. Most hard money loans run six months to two years, which fits their purpose as bridge or renovation financing rather than long-term debt. You only pay interest for the months the loan is outstanding, so on a $300,000 loan at 12%, each month costs roughly $3,000 in interest.
One thing to know going in: hard money loans made for business or investment purposes are exempt from the Truth in Lending Act and Regulation Z, which normally require standardized cost disclosures before closing.1eCFR. 12 CFR 1026.3 – Exempt Transactions You will not get the same side-by-side rate comparison a traditional mortgage borrower receives. Read every rate and fee in the loan agreement yourself.
Origination Points
Points are the second-largest cost after interest. One point equals 1% of the loan amount. Most hard money lenders charge 1 to 4 points, and 2 to 3 is the most common range. On a $300,000 loan, 3 points is a $9,000 origination fee due at closing.
You pay points at the closing table, either out of pocket or deducted from the loan proceeds before the funds reach you. The fee is non-refundable. If a mortgage broker introduced you to the lender, the broker may add their own point on top. Ask upfront whether any intermediary fees apply.
Closing and Administrative Fees
Several thousand dollars in smaller fees typically round out the cost of closing. Common line items include:
- Underwriting fee: $500 to $1,500 for the lender’s review of the property, project, and borrower.
- Document preparation: $300 to $600 for the promissory note, deed of trust, and related closing documents.
- Appraisal: $400 to $900. Complex or multi-unit properties cost more.
- Draw inspection fees: $150 to $300 per inspection on construction or renovation loans, charged each time the lender verifies work before releasing the next tranche of funds.
- Credit report: $30 to $100 per applicant.
- Flood certification and tax service: $15 to $50 each.
- Lender’s title insurance: several hundred to a few thousand dollars, depending on loan size and location.
Some fees are due at application, others at closing. Ask the lender for a full fee schedule before you apply.
Cash You Need Up Front
Most lenders cap the loan at 60% to 75% of the property’s current appraised value, so you bring 25% to 40% of the purchase price. On renovation projects, some lenders go up to 70% to 80% of the after-repair value, but you still typically need cash to cover the gap between the purchase price and what the loan will fund.
A worked example: for a $400,000 purchase with a 70% loan-to-value cap, the maximum loan is $280,000. You come up with $120,000 for the down payment, plus points, closing fees, and any renovation money not covered by the loan. Add it all together when you plan the deal, not just the headline rate.
How Payments Work
Most hard money loans are interest-only. Each month you pay only the interest that accrued on the balance; nothing goes toward principal. At the end of the term, the full original balance comes due as a single balloon payment, which you cover by selling the property, refinancing into a conventional loan, or using other funds.
Some lenders offer a capitalized-interest option with no monthly payments. The interest is added to the balance each month, and you repay principal plus accumulated interest at maturity. That keeps cash free during renovation but increases the final payoff.
Either way, you need a realistic plan for retiring the entire balance by the maturity date before you sign.
What Pushes Your Rate Up or Down
Lenders price each loan around a short list of risk factors:
- Loan-to-value ratio. The lower your LTV, the better the rate and points. Moving from 75% to 65% LTV can meaningfully improve pricing.
- After-repair value. On rehab projects, a completed value that comfortably exceeds the loan amount earns better terms.
- Investor experience. A borrower with documented completed flips generally beats a first-timer on price.
- Property type. Single-family homes tend to price lower than commercial, industrial, or mixed-use properties, because single-family is faster to sell in a forced sale.
- Liquidity and reserves. Thin cash reserves push rates higher, because lenders want to see you can cover interest payments and construction overruns.
- Subordinate financing. If another lender holds a junior lien, the primary lender takes more risk and prices accordingly.
Credit scores matter less than in conventional lending but are not ignored. Most hard money lenders pull credit and may set a minimum. A low score will not automatically disqualify you, but expect a higher rate or larger reserve requirements.
Extension, Prepayment, and Default Costs
Projects run long, loans occasionally go sideways, and both show up in the fine print.
Extensions. If your project runs past the maturity date, many lenders will extend rather than default you. Extension fees usually run 0.5% to 1.5% of the outstanding balance for each extra period, often one to three months. On a $300,000 balance, 1% is $3,000 for more time. Not every lender offers extensions, so confirm this before signing.
Guaranteed interest. Many hard money contracts include a minimum interest clause: you owe three to six months of interest even if you pay off sooner. Finish a flip in two months on a six-month minimum, and you still owe the full six months. On fast projects, this can eat a real chunk of profit, so run the numbers before closing.
Late payments and default. A late payment typically triggers a 5% to 10% penalty on the missed amount after a grace period of 10 to 15 days. If the loan passes maturity without full repayment and no extension, a default interest rate of 18% to 25% can apply to the balance until cleared, and the lender can start foreclosure to recover from a sale of the property.
Deducting the Interest and Points
Interest paid on a hard money loan used for investment property is generally deductible, but the category depends on how you use the property.2Internal Revenue Service. Topic No. 505, Interest Expense
Points on an investment property loan are treated as prepaid interest. Unlike points on a primary residence, which can often be deducted in the year paid, points on an investment loan are spread over the life of the loan.3Internal Revenue Service. Publication 550, Investment Income and Expenses On a 12-month hard money loan, you deduct one-twelfth of the points each month the loan is outstanding.
If you hold the property as a rental or other passive investment, the interest is generally investment interest expense, deductible only up to your net investment income for the year, with any excess carried forward.2Internal Revenue Service. Topic No. 505, Interest Expense If your real estate activity qualifies as an active trade or business, the interest may instead be a business expense, subject to a federal limit that generally caps business interest deductions at 30% of adjusted taxable income.4Internal Revenue Service. Questions and Answers About the Limitation on the Deduction for Business Interest Expense A tax professional who works with real estate investors can tell you which bucket applies and how to claim the deduction.