Unlike residential mortgage interest rates, which are relatively easy to find and compare online, hard money loan interest rates are not posted daily online or published in newspapers because the main factors that influence private loan interest rates don’t include the federal funds rate or 10-year Treasury yields. There are four main factors that impact hard money interest rates:

1. Current supply and demand for private loans – Since most private lenders are small businesses that prefer to finance loans in their local area, rather than operate and lend on a national level, the availability of private capital varies greatly depending on the location of the property to be financed. Therefore, the more private lenders financing hard money loans in a geographic area, the lower the interest rates are likely to be.
2. Borrower’s financing timeline – Hard money loans are naturally faster to close than conventional loans, but sometimes even the fast funding timeline of one to three weeks is too long because the hard money loan is replacing other funding that fell through at the last minute. It’s important to keep in mind that the sooner that a borrower wants or needs the money, the higher the interest rate will be, so a hard money loan funded in a couple of days will have a much higher rate than one funded in a couple of weeks.
3. Property loan-to-value (LTV) ratio – Because the LTV ratio is an indication of the riskiness of the loan, it is also the strongest gauge of what kind of interest rate a borrower can expect to get. A borrower who gets a hard money loan with a high LTV ratio has less skin in the game; the cost of this is a higher interest rate on the loan. Without taking any other factors into consideration, the LTV and interest rates tend to be directly proportional to each other, so a lower LTV will typically result in a lower interest rate.
4. Property location – Another factor that hard money lenders consider is the time and cost of foreclosing if the borrower defaults on the loan. Since foreclosure processes and costs vary state-to-state, borrowing hard money can cost more in states where foreclosures are lengthier or more expensive because it translates into higher perceived risk for the lender if they have to wait longer to recover their investment. Being aware of the foreclosure processes in your state can help you determine whether to expect a slightly higher interest rate from hard money lenders there.

While these four factors have the most influence on the interest rates for hard money or private capital loans, there are other factors that can affect the rate for any particular loan request. The key point to remember is that, unlike conventional mortgage interest rates that have predictable patterns, private loan interest rates are determined on a case-by-case basis.

For more information about Montegra’s interest rates for our private capital loans, contact us at 303-377-4181.