It’s relatively easy to keep track of and compare interest rates for conventional mortgages from traditional lenders. Hard money, or bridge loan interest rates can seem much less transparent and more difficult to predict because they are much less reliant on the federal funds rate or 10-year Treasury yields. However, there are factors that have a greater influence on interest rates for hard money loans that can be analyzed. Here are four factors that can have a strong impact on the rise and fall of these interest rates.

1. Supply and demand: The more hard money and private capital lenders there are in a given area, the lower the rates will be as a result of the competition. On the flip side, in areas where bridge lenders are few and far between, the interest rates will trend higher.
2. Financing timeline: Although hard money loans are valued for their faster funding turnarounds, there will likely be a difference in the interest rate for a loan that needs to be funded in a matter of days rather than one that has two to four weeks to close. This is because underwriting the loan in a shorter timeframe increases the risk to the lender, so if you can give your lender enough time to conduct due diligence and the full underwriting process, then your interest rate should go down.
3. LTV (loan-to-value) ratio: Unlike traditional lenders, private capital lenders use asset-based underwriting for their loans and so the LTV ratio is far more important than a borrower’s credit score in determining the interest rate for the loan. The less money that a borrower is willing to commit at the beginning of the loan, the more the loan will cost in the end. All other factors being equal, the LTV and interest rates have a direct relationship or correlation—when one goes up or down, the other follows—so a loan with an LTV of 65% will have a higher interest rate than one with an LTV of 50%.
4. Location: Lending and foreclosure laws can vary state-to-state, so if you’re borrowing in a state that has a more lengthy foreclosure process or other laws that increase the risk to private lenders, then the interest rates will be higher to offset this risk.

These are just a few of the factors that can affect interest rates for private capital loans, but they provide a general idea of how these interest rates are much more likely to fluctuate between lenders and projects and strategies you can adopt to potentially reduce interest rates for your future projects (such as putting up more of your own money initially or allowing for a slightly longer closing time).

If you have questions about the interest rates Montegra offers for our private capital loan programs, contact us at 303-377-4181.