Hard Money Loan
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What Is a Hard Money Loan?
A hard money loan is a short-term loan that offers borrowers capital in exchange for using their property as collateral. Commonly used by real estate investors, these loans are often loaned out faster and with fewer requirements than standard bank loans, making them ideal for situations that require quick access to funds. The high interest rates associated with hard money loans make them risky for borrowers. Still, those willing to take on the risk may find themselves in an advantageous position. For investors looking for an attractive return on their investment, taking out a hard money loan can be an effective strategy.Hard Money Loan Calculator
$60,000
$240,000
Monthly payment
$1,200
$60,000
$28,800
$240,000
What Is the Typical Payment Structure and Term on a Hard Money Loan?
Hard money loans typically come with higher interest rates, larger down payments, and shorter repayment terms. Generally, they are repaid within a year or two, but the repayment period can vary depending on the borrower’s specific situation. Borrowers must know their funding options when considering a hard money loan to decide whether it is best suited for them.Typical Hard Money Loan Rates
Rates for hard money loans can vary, but the average interest rate is generally between 10% and 18%, which is significantly higher than a conventional loan. On top of that, other costs are often associated with these types of loans, including points and origination fees ranging from 2% to 6%.When Should You Use a Hard Money Loan?
Hard money loans can be an excellent option for those experienced in real estate who need a short-term loan with quick approval. These loans are often more expensive than traditional mortgage loans. Still, they are sometimes the best fit for particular projects, especially when purchasing discount properties or fixing-and-flipping houses.While not every project requires a hard money loan, investors should become familiar with this type of financing and determine if it fits their current circumstances. These loans can help accelerate projects by eliminating lengthy application processing times and providing access to capital quickly.Example of a Hard Money Loan
You want to purchase a fix-and-flip property that costs $300,000. To conserve capital for remodeling and renovations, you decide to take out a hard money loan to gain quick access to finance to fund the project. You approach a lender with a $90,000 down payment and ask for the remaining $210,000 over 1 year. The fee structure* could look something like this:
As per this example, you would need to pay the $8,300 in fees upfront and 12 monthly interest payments of $2,100 over the 1-year term of the loan. The remaining $210,000 principal balloon payment would be due at the end of the loan contract. *This is a basic example. Additional fees and rates may differ from lender to lender.