Hard Money Loans: Average Rates

Hard money loans are considered a high risk by most financial institutions. It is for this reasons that its rates are higher than that of traditional loans.

The average interest rates charged on hard money loans are between 11 and 18 percent of the total amount of the loan. This rate is more than twice the average rate on a conventional mortgage, which is can fall between 4 and 6 percent of the total loan amount. Since hard money loans are based on collateral (which is usually the value of a property) and not on the borrower's credit history or credit score, this type of loan automatically becomes of a greater risk to the bank, which is why they will charge a lot more interest on the loan.

In addition to these high rates, lenders will limit the loan-to-value ratio to a much lower percentage with a hard money loan than with a conventional mortgage. With a traditional mortgage, the loan-to-value ratio that is given averages near 80 to 90 percent. The loan-to-value ratio on a hard money loan is closer to 50 percent, and the highest is typically 70 percent.

The overall rates that you will pay for a hard money loan will be higher, not only due to the interest, but also because of the points due. You may be required to pay anywhere from 4 to 8 points on a hard money loan. These points are fees for obtaining the loan and are usually worth about one percent of the total loan amount.

Considering the higher end of the average rates on a hard money loan, a borrower with a loan of $200,000 may need to pay nearly $14,000 to $15,000 upfront with a monthly payment of $2,700 to $3,000 in interest and principal. The term on a hard money loan is much shorter than that of a conventional mortgage, so while these may seem like large amounts, payments will only have to be made for a few years, as opposed to 20 or 30 years.

There is also the option of setting up a balloon. A balloon hard money loan will allow you to make interest only payments for one, three, or five years before principle payments or the full balance of the loan are due. In this case the rates will not change, but you will need to pay off the rest of the balance at the end of the term or the payments will go up.

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