Hard Money Loan Cost

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How to use the Hard Money Loan Cost

1
Enter the loan amount
The total loan, including any rehab holdback.
2
Copy the rate and points
Both are on the term sheet. Points are a percentage of the loan.
3
Ask for every fee
Processing, underwriting, document and draw-inspection fees add up.
4
Estimate how long you'll keep it
Points cost the same whether you repay in three months or twelve, so short loans cost more per year.
5
Adjust for draws
If interest is charged only on rehab funds as they're released, lower the average balance.

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Lenders quote a rate, but the rate is only part of the cost. This tool adds interest, points and fees, then shows what the loan costs as an annual percentage.

Worked example

A flipper borrows $250,000 at 11% with 2 points and $1,995 in fees, and expects to repay it in six months.

Interest comes to $13,750, points to $5,000 and fees to $1,995, for a total of about $20,700. Spread over six months, that's an effective cost of about 16.6% a year, well above the 11% note rate.

The formula

Interest       = Loan × Average balance % × Rate × Months ÷ 12
Points         = Loan × Points %
Total cost     = Interest + Points + Fees
Effective rate = Total cost ÷ Loan ÷ (Months ÷ 12)

Common mistakes

Comparing rates only. A lower rate with more points can cost more on a short project. Use Compare Two Lenders.
Missing minimum interest. Some loans charge a minimum number of months of interest even if you repay early.
Ignoring extension fees. If the project runs past the term, extension fees and higher rates can apply. Read that section of the term sheet.

What to do next