Hard money loans close in days rather than weeks, which matters when a distressed property hits the market or an auction deadline is 72 hours away. The tradeoff is a cost structure that differs significantly from conventional financing. Understanding each term before signing protects your deal margins and your relationship with the lender.
What Makes Hard Money Loans Different
Hard money loans are asset-based: the lender underwrites primarily against the property's value, not the borrower's debt-to-income ratio or credit score. That focus on collateral allows faster decisions but shifts risk to the lender, which is reflected in pricing.
Typical loan terms run 6 to 24 months. Most hard money deals are structured as interest-only with a balloon payment, meaning monthly cash outflows are lower but the full principal comes due at maturity. Investors generally exit by selling the property or refinancing into a conventional or DSCR loan (Debt Service Coverage Ratio loan, which qualifies based on rental income rather than personal income).
Interest Rates on Hard Money Loans
Hard money interest rates currently range from roughly 9% to 15% annually, depending on the lender, the borrower's track record, and the property type. Rates at the lower end of that range typically go to experienced investors with documented flip history and strong collateral. Borrowers newer to the asset class or working with distressed collateral can expect rates closer to 13% to 15%.
A few structural points that affect the real cost:
- Interest calculation method. Some lenders charge interest on the full committed loan amount from day one; others charge only on drawn funds. On a $300,000 loan where you draw in stages for renovation, the difference can be meaningful.
- Paying additional origination points upfront sometimes reduces the note rate. On a 9-month deal, the math rarely favors paying extra points to reduce rate; run the numbers for your specific hold period.
