Hard Money Rate:
What is a Typical Hard Money Rate?
In comparison with traditional conventional mortgages and sub-prime mortgages a Hard Money Mortgage is generally seen as more expensive. Often times the reason for this elevated cost is the significant amount of interest a lender will usually levy onto the principal ( most reports indicate a range averaging around 11.5% more and may even include points).
It is important to note that the interest rate on a Hard Money Mortgage is not dependent what so ever on the Bank Rate, in other words the money a borrower receives has no interest borrowed against it in relation to the money the lender owes to a central bank. Instead the lender will focus on the real estate market and the liquidity ( or ease of sale) on the collateral property placed against the loan. While the rate typically fluctuates from lender to lender some reports have shown a 12% to 21% range, with some in excessive cases reaching as high as 29%.
Hard Money Rate and Points
When referring to these situations as well as other common loan situations a common word one might hear is “points”. What are points and what do they have to do with any rates? Points, which may also be called discount points, are a form of pre-paid interest. One point equals one percent of the loan amount. When a lender charges an individual points they are effectively increasing the yield on the loan above the stated interest rate. From a borrower stand point this allows for some lowering of the monthly interest rate in exchange for this up front payment. Within the continental United States the loan rate is typically lowered anywhere from an 1/8 of a percent to a 1/4 of a percent.
On a Hard Money loan a borrower might find that points are required by a lender as well as collateral, and may notice that the points required are sometimes one to three points higher then an traditional loan. This can result in three to six points on an average hard money loan. Depending on the loan in question it is not out of the realm of possibility for a lender want anywhere from four to even ten points.
All Hard Money borrowers are advised to pursue this type of loan with the aid of a professional real estate attorney to prevent any misunderstanding and to assure all traditional procedures are followed, especially in the case of a court judgement.