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What Are Interest Rates on Hard Money Loans?

Hard money loans offer a convenient form of financing for real estate investors and property flippers. You can obtain them from alternative lenders. Like all loans, hard money loans are a form of debt financing. They are distinguished from other types of loans, however, by their use of real property as collateral. As long as you own real property, you can use it to secure a hard money loan.

Hard money loans pay little or no attention to creditworthiness. Even if you have bad credit — or if you don’t have any credit — you can still obtain a hard money loan; you just need to use real property to secure the hard money loan. Before applying for one, though, you might be wondering how much interest rates are on hard money loans.

What Are Interest Rates on Hard Money Loans?

Average APRs Vary

The average annual percentage rate (APR) of hard money loans varies. Some hard money loans have an APR of 8%. Other hard money loans have an APR of 15%. There’s no universal interest rate for hard money loans. Rather, average APRs vary.

Understanding Hard Money Loan APRs

The APR of a hard money loan is the annual interest rate. It’s based on the principal amount of the hard money loan, and the APR is typically “baked into” the required monthly payments.

If you obtain a $500,000 hard money loan with a 10% APR, for instance, you’ll pay $50,000 in interest per year. If you obtain a $250,000 hard money loan with a 10% APR, on the other hand, you’ll pay $25,000 in interest per year. Keep in mind that hard money loans are short-term loans. Therefore, most borrowers pay them off within a short period. And the sooner you pay off a hard money loan, the less interest you’ll have to pay on it.

Factors That Affect Hard Money Loan APRs

Different factors can affect hard money loan APRs. Loan-to-value (LTV) ratios, for instance, will affect hard money APRs. The lower the LTV ratio, the less interest you can expect to pay.

Some lenders charge higher APRs than others. If you’re thinking about financing your real estate business with a hard money loan, you should choose the right lender.

The federal funds rate will affect hard money loan APRs. Set by the U.S. Federal Reserve, it’s the interest rate at which banks can charge each other to borrow money. As the federal funds rate increases, banks and other lenders will typically charge higher APRs on their loans.

This article was brought to you by Intrepid Private Capital Group, a Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our website.

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Intrepid Private Capital Group • December 9, 2022

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