Hard Money Loan Calculator: What the Rate Doesn't Tell You

Introduction

Hard money is quoted as a rate plus points, which invites you to think of the rate as the cost and the points as a fee. On a short hold it is closer to the other way round.

TL;DR: Points are a fixed cost spread over however long you hold. Two points on a six-month loan is roughly four extra percentage points of annualised cost. Repay in three months instead and it is eight. The shorter the hold, the worse the effective rate — which is the opposite of most people's intuition about "only borrowing for a few months."

The formula

Hard money is interest-only: you pay interest monthly and repay the whole principal at sale or refinance. So the total cost is three separate things added together.

Interest   = balance
             × (annual rate ÷ 12)
             × months held

Points     = total loan × points%

Total cost = interest + points
             + flat fees

Effective annual rate =
    (total cost ÷ total loan)
    × (12 ÷ months held) × 100

That last line is the one that matters, and it is the one lenders do not quote. It converts everything you paid into a single annualised percentage you can compare against any other financing.

Worked example

$200,000 purchase, $50,000 rehab, six-month hold. The lender advances 85% of purchase and 100% of rehab at 11.5% with 2 points and $1,500 of flat fees.

• Purchase advance: $200,000 × 85% = $170,000
• Rehab advance: $50,000 × 100% = $50,000
• Total loan: $220,000

Rehab money is drawn as work completes, so on average about half of it is outstanding across the hold. Interest accrues on roughly $170,000 + $25,000 = $195,000:

• Interest: $195,000 × (11.5% ÷ 12) × 6 = $11,213
• Points: $220,000 × 2% = $4,400
• Flat fees: $1,500
• Total cost: $17,113

Effective annual rate: (17,113 ÷ 220,000) × (12 ÷ 6) = 15.6%

The quoted rate was 11.5%. The money cost 15.6% annualised — about four points more, which is exactly the points and fees spread over half a year.

Why a shorter hold costs more, not less

Interest scales with time. Points and fees do not. So compressing the hold shrinks one component and leaves the other untouched, and the annualised figure rises:

Hold	Interest	Points + fees	Total	Effective annual
3 months	$5,606	$5,900	$11,506	20.9%
6 months	$11,213	$5,900	$17,113	15.6%
9 months	$16,819	$5,900	$22,719	13.8%
12 months	$22,425	$5,900	$28,325	12.9%
18 months	$33,638	$5,900	$39,538	12.0%

This does not mean holding longer is better. Your total cost still rises with every month — from $11,506 at three months to $39,538 at eighteen. What falls is the rate, because the fixed costs get amortised over more time.

The practical implication is about comparison, not strategy: if you are weighing hard money against a private lender charging a flat 13% with no points, the answer depends entirely on how long you hold. At three months the 13% loan wins easily. At eighteen months the hard money loan is cheaper.

The draw schedule matters more than it looks

Most lenders advance rehab funds in draws as work is inspected and completed, so you pay interest on a balance that grows over the project rather than on the full amount from day one. On the example above, that assumption is worth about $1,437 — the difference between interest on $195,000 and interest on $220,000.

Some lenders do charge interest on the full committed amount from closing. It is a legitimate structure and it is not always disclosed prominently. The calculator has a switch for it because the difference is real money, and because knowing which one you have is a question worth asking before you sign.

Related: many lenders also charge a draw fee per inspection. Those belong in the flat fees field.

What this calculator does not include

Prepayment penalties and minimum interest. Many hard money loans carry a minimum interest guarantee — often three to six months — so repaying in month two does not save you month three's interest. If yours has one, model the minimum period rather than your expected hold.

Extension fees. Projects run late. Extensions are commonly priced at a point or so per quarter. If there is real schedule risk, run the calculator at the extended term.

Holding costs. Taxes, insurance, utilities and lawn care while you own it. Those are not financing costs, so they belong in the fix-and-flip or BRRRR analysis rather than here.

The exit. Hard money is a bridge. What actually determines whether the deal works is what it bridges to — a sale, or a refinance whose proceeds have to cover this payoff.

FAQ

What is a point on a hard money loan?

One percent of the loan amount, charged at origination. Two points on $220,000 is $4,400, typically deducted from the first advance rather than billed. Points are earned the day the loan funds and are not refunded if you repay early.

Is hard money cheaper than a conventional loan?

Never, on rate. It is faster, it lends on the property's after-repair value rather than your income, and it will fund a house no conventional lender will touch. You are buying speed and flexibility, and the effective rate is the price. The question is whether the deal's margin covers it.

How is the effective annual rate different from APR?

They are attempting the same thing. APR has a legal definition and a prescribed set of includable fees, and for consumer loans it must be disclosed. Most business-purpose investor loans are exempt from that disclosure, so the number is often simply not given to you — which is why calculating it yourself matters here more than on a conventional mortgage.

Do I pay interest on the rehab money I have not drawn yet?

Usually no — most lenders charge interest only on funds advanced, which is why the default here assumes an average of half the rehab balance outstanding. But some charge on the full commitment from day one. Ask, and set the switch accordingly.

What LTV will a hard money lender go to?

Commonly 80–90% of purchase price plus 100% of rehab, subject to a ceiling on total loan against after-repair value — often 70–75% of ARV. That ARV ceiling is usually the binding constraint on a thin deal, not the purchase LTV.

Can I refinance out of hard money immediately?

Not always. Many conventional and DSCR lenders impose a seasoning requirement — often six months of ownership — before they will lend against the improved value rather than your purchase price. That requirement, not your construction timeline, frequently sets the real minimum hold. Check it before you plan the exit.

Conclusion

Run the effective annual rate at your realistic hold, not your optimistic one, and add the extension you will probably need. Then compare it against the deal's projected margin. Hard money is not expensive or cheap in the abstract — it is expensive relative to a thin margin and cheap relative to a deal you could not otherwise do.