The interest rates for hard money loans are typically less influenced by the market rates offered by banks and other institutional lenders than by the risk factors of the loans themselves.  Each hard money lender will have their own system for determining the interest rate for a particular borrower, but most have a range of rates they typically offer.  Some hard money lenders keep to a more moderate interest rate range from 10% to 11%.  These are sometimes called “soft” hard money lenders.  Others, the really “hard” hard money lenders, may have rates going from 12% to 18%.  It is important for a prospective borrower to determine (often through a web site review) which category of lender they are applying to for their loan.  Within these ranges, the interest rate offered to a borrower for a specific property is often affected by the following factors.

 1.      Expeditious underwriting. The speed at which the loan is issued can limit the amount of due diligence that the lender is able to perform, thus increasing the risk of the loan and, consequently, the amount of interest charged to make up for that risk.

2.      Minimal credit checks and red tape. Hard money lenders are not as diligent as banks are as to checking credit history.  However, if they do run a credit check, having really low credit scores will often push the interest rate up, while excellent credit scores may keep the interest rate at the lower end of a lender’s scale.

3.      Uncertain property conditions. Hard money loans are often used to purchase properties that are distressed, underdeveloped, or raw land. These types of property are seen as very high risks for lenders—to the point that few banks or institutional lenders will underwrite loans on them at all. As a result, hard money lenders, who fund loans on such properties, will charge higher interest rates for those loans because the loan amount is usually determined by a property’s future value (after rehabilitation or development takes place), but the lender has no way of ensuring that any improvements or development will actually take place once the loan is issued. Therefore, the higher interest rate (along with the ability to foreclose on the property in the event of a default) ensures that the lender will be covered in the event that the property does not reach the projected future value for any reason.

Montegra, with its 43 year history as the most respected Denver hard money lender, strives to maintain competitive interest rates—typically between 10 and 11%  percent—that are often lower than those of other Denver hard money lenders. In this way, they account for the risk inherent in the loans they are underwriting (and ensure an acceptable ROI for their investors) while still making the loans financially feasible for the borrower.