HARD MONEY LOAN RATES

The average interest rate for a hard money loan is 11.25% with rates varying from 7.5% to 15% for the US in 2020. Hard money lenders also charge “points” and each point is the equivalent of one percent of the loan. These points help to cover the expenses of the loan and mitigate the risks the lender is undertaking. Points are normally paid upfront as opposed to interest that is paid back monthly.

Interest Rates And Points

Depending on the area of the country wherre you reside and from lender to lender, points charged and interest rates will differ. In many cases competition plays a large part in the rates offered. In a heavily populated area of the country where there are many hard money lenders – competition will drive interest rates and points charged to a lower total cost than in more rural areas where there is not so much competition. Obviously there is greater risk taken by hard money lenders when they lend money compared to hwne a bank does so – hence the interest rate will be higher than conventional bank loans. As well as interest rates in the ten to fifteen percent range, you can expect the points to be somewhere around three percent with variances from around two to ten percent, depending on the ratio of the loan to value.

Value Ratios

The Loan to Value (LTV) is decided by the ratio of the amount of the loan divided by the value of the property. Often hard money loan lenders will lend up to around seventy percent of the properties current value. Some hard money loan lenders will lend money based on the ARV or After Repair Value – that is to say the value after improvements to the property have been completed. However, this is a riskier loan proposition from the perspective of the hard money lender, because they are putting more money upfront and therefore will come at a higher interest rate. Some hard money lenders will even finance the rehab costs and lend a higher percentage of the ARV but as these loans are far more risky, you can expect far higher rates of interest in the region of fifteen to eighteen percent and five to six points when the lender is funding a loan with little or no down payment from the person who is borrowing the money. However, if the borrower can still make a profit at these interest rates, they may decide it is their best option.