Calculate the true cost of a hard money loan including origination points, monthly interest payments, and total financing costs. See your effective APR and understand what you are really paying for fast capital.
When you factor in points and fees, the true annual cost of this loan is much higher than the stated 12% rate. This is normal for hard money - speed and flexibility come at a premium.
Include these loan costs in a complete flip analysis to calculate your true profit and ROI.
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Hard money loans are short-term, asset-based loans used by real estate investors who need fast funding. Unlike traditional mortgages, approval is based on the property's value rather than the borrower's creditworthiness.
Points: Upfront fees charged as a percentage of the loan (typically 2-4 points). Interest Rate: Usually 10-15% annually, calculated as interest-only monthly payments. Loan Term: Typically 6-12 months. LTV: Most lenders fund 65-75% of ARV or 80-90% of purchase price.
Monthly Payment = (Loan Amount × Interest Rate) ÷ 12Don't just look at the interest rate. Factor in points, origination fees, document fees, inspection fees, and draw fees. A loan with lower interest but higher points might cost more than one with higher interest and fewer points.
Hard money makes sense when: you need to close fast (7-14 days vs 30-45 for conventional), the property won't qualify for traditional financing, or you're doing a short-term flip. For buy-and-hold, plan to refinance into conventional debt.
Hard money loans are short-term, asset-based loans from private lenders. They are secured by real estate and used primarily by flippers who need fast closings. Rates are higher (10-15%) with 2-4 points.
Points are upfront fees charged as a percentage of the loan amount. 2 points means you pay 2% of the loan amount at closing. A $200,000 loan with 2 points costs $4,000 in points.
Most hard money loans are interest-only during the term, with the full principal due at maturity (balloon payment). This keeps monthly payments lower during the renovation period.
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