Hard Money Loan Rates & Points: What You'll Really Pay

Hard money is priced differently from a bank loan, and investors who only look at the interest rate misjudge the cost badly. A hard money loan has two price tags — a rate and points — and because the loan is short-term, the rate alone tells you very little. This guide explains how hard money pricing works, what's typical, what moves it, and how to calculate what you'll actually pay over your hold.

The two components of hard money pricing

1. Interest rate. Higher than a bank, paid monthly, almost always interest-only. Through recent cycles, hard money rates have broadly run in the ~8.5% to 12%+ range, depending on the lender and the deal.
2. Points. An upfront fee, charged at closing, expressed as a percentage of the loan. One point = 1% of the loan amount. Hard money points typically run 1–3%.

Think of points as the lender's origination fee and the rate as the ongoing cost of capital. Both come out of your project's profit, so both matter.

Why the rate alone is misleading

A bank loan runs for decades, so the annual rate dominates the cost. A hard money loan runs for months, so the upfront points can rival or exceed the interest you'll pay. Compare two quotes:

Loan: $200,000, held 6 months

Quote A: 10% rate, 3 points
  Points:   200,000 × 3%        = $6,000
  Interest: 200,000 × 10% × 0.5 = $10,000
  Total (6 mo)                  = $16,000

Quote B: 12% rate, 1 point
  Points:   200,000 × 1%        = $2,000
  Interest: 200,000 × 12% × 0.5 = $12,000
  Total (6 mo)                  = $14,000

The higher-rate quote (B) is actually $2,000 cheaper on a 6-month hold, because its points are lower. Flip the hold to 18 months and the math reverses. Always model total dollar cost over your specific timeline, not the headline rate.

What drives your rate and points

Several factors move hard money pricing:

• Leverage. Higher LTV or loan-to-cost = more risk = higher rate and/or points. A bigger down payment lowers both.
• The deal's margin. A property bought well below ARV (a healthy 70% rule cushion) prices better than a thin deal.
• Experience. A track record of completed flips can earn lower points and better leverage; first-timers often pay a premium.
• Property type & condition. Standard single-family rehabs price best; unusual properties or heavy construction cost more.
• Loan size. Very small loans sometimes carry minimum fees that push the effective cost up.
• Market. Local lenders who know your market may price more competitively than a distant national shop.
• Speed demands. A rush close occasionally carries a premium.

Interest on drawn funds vs. the full loan

A cost detail that matters on rehab loans: do you pay interest on the full loan or only on what you've drawn? Many hard money lenders hold the rehab budget in reserve and charge interest only on drawn funds, released through a draw schedule. That can save real money versus paying interest on the entire loan from day one. Ask every lender how they handle this — it's a genuine cost difference, not a technicality. See understanding draw schedules.

Interest reserves

Some loans include an interest reserve — the lender sets aside part of the loan to cover your monthly interest payments during the project. This preserves your working capital while you rehab, at the cost of borrowing a bit more. It's helpful on longer projects or when cash is tight, but it does add to the balance you'll repay.

Other fees to ask about

Beyond rate and points, a few line items can appear:

• Underwriting / processing / doc fees — usually modest, flat dollar amounts.
• Appraisal or broker price opinion — to establish value.
• Inspection / draw fees — per-draw charges on a rehab loan.
• Extension fee — if you need more time at maturity (often a fraction of a point per month). Know this before you need it.
• Prepayment terms — most hard money has no prepay penalty, but a few impose a minimum interest period (e.g., 3 months' interest guaranteed). Confirm it.

How to compare hard money lenders the right way

1. Total cost over your hold. Add points + interest for your realistic timeline, plus the flat fees. Compare dollars, not rates.
2. Interest on drawn vs. full loan. A lender charging only on drawn funds can beat a lower headline rate.
3. Leverage. Compare the actual LTV / loan-to-cost / ARV cap — how much cash you'll bring changes the deal's economics more than a small rate difference.
4. Draw speed and reliability. Slow draws stall your job and inflate your holding costs. Certainty to close matters even more — a lender that retrades terms can cost you the deal.
5. Extension policy. Understand the fee and terms if your exit slips.

A full worked example

Fix-and-flip, $250,000 ARV
Purchase $150,000 + rehab $40,000 = $190,000 all-in

Loan: $170,000 (mix of purchase + held rehab), 10.5% rate, 2 points
Hold: 7 months

Points:   170,000 × 2%          = $3,400
Interest: ~170,000 × 10.5% × (7/12) ≈ $10,400  (less if charged only on drawn funds)
Flat fees (appraisal, processing, draws) ≈ $1,500
Total financing cost ≈ $15,300

Projected resale $250,000 − all-in $190,000 − financing $15,300 − selling costs ≈ profit

The financing cost is real, but it's the price of doing a deal you couldn't otherwise fund — and it's recovered at the sale.

Bottom line

Hard money pricing is a rate plus points, and on a short hold the points often matter as much as the rate. Calculate total dollar cost over your actual timeline, ask whether interest is charged on drawn funds or the full loan, and weigh leverage, draw speed, and certainty to close alongside price. Run your deal and get a quote with your purchase, rehab, and ARV, or start with what is a hard money loan.

This guide is general information for real estate investors, not financial advice. Rates, points, and fees vary by lender, market, and deal and change over time.