Understanding the Costs of a Hard Money Loan

Understanding the Costs of a Hard Money Loan

Those who’re looking to refurbish worn out property and sell it for profit can use hard money loans to finance those projects. Companies that offer hard money loans gather private investors who want high-interests on the funds they provide and rehab borrowers that fix and flip properties. Generally, when the real-estate market is improving, there is a splurge of rehabbers who turn to hard money loans to fund projects. How do Hard Money Loans Work Hard money loans are offered on a short-term period; they usually run for 6-24 months. Before the loan period ends, the borrower is expected to make a balloon payment that consists of the interest amount and the principal too. The funding received from hard money loans covers 60-80% of the final value of the property after repairs have been made. Compared to conventional loans, hard money loans have higher interest rates along with greater lender fees and extra charges. There are two cost-components you’ll need to consider in hard money loans: interest rates and up-front points. Interest Rates As mentioned above, interest rates on hard money loans are substantially higher than on loans that are given by traditional institutions. Because hard money loan lenders are taking a greater risk by offering a large sum of money, they require a larger amount of interest in return—the larger the loan, the greater the interest. Hard money loans usually start at an interest rate of 7%; on average, they are offered with a 10% interest rate but this can increase depending on how big the financial risk is. Up-Front Points When it comes to hard money loans,...