Hard money loan costs: points, interest, and fees

The short answer

A hard money loan is not priced by the interest rate alone. The cost includes points, lender fees, third-party closing costs, draw fees, interest, and sometimes a minimum interest charge or an extension fee.

The number that matters is not the rate on the term sheet. It is the total finance charge compared with the cash you have to bring and the profit left after the exit.

The hard money loan calculator keeps those layers separate. It sizes the loan, separates the initial advance from the rehab holdback, adds the cost stack, and shows cash to close, total cash invested, net profit, ROI, and break-even sale price.

Start with the loan sizing, not the rate

Before comparing costs, establish what the lender will actually fund. A hard money loan is usually sized from two caps:

• Loan-to-cost (LTC): a percentage of the purchase price plus the rehab budget.
• Loan-to-ARV (LTV): a percentage of the after-repair value.

The commitment is the lower of those two loan amounts, capped at the project cost. The initial advance is then capped at the purchase price. The rest of the commitment becomes the rehab holdback.

Project cost = purchase price + rehab budget

Commitment = min(LTC × project cost, ARV LTV × ARV, project cost)

Initial advance = min(commitment, purchase price)

Rehab holdback = commitment − initial advance

That structure creates two different numbers that are easy to confuse:

• The loan commitment is the maximum the lender will fund over the life of the loan.
• The initial advance is the money available at closing.

The holdback is not cash in your pocket. It is released as rehab work is completed and inspected. If the rehab budget is larger than the holdback, the difference is unfunded rehab cash that you have to bring.

The default example

The calculator’s demo deal uses a $150,000 purchase, a $35,000 rehab budget, a $260,000 ARV, an 85% LTC limit, and a 70% ARV LTV limit.

Item	Amount
Project cost	$185,000
Maximum LTC loan	$157,250
Maximum ARV loan	$182,000
Loan commitment	$157,250
Initial advance	$150,000
Rehab holdback	$7,250
Unfunded rehab	$27,750

The LTC cap is binding. The lender commits to $157,250, advances $150,000 at closing, and holds back $7,250 for rehab. The borrower still has to fund $27,750 of the $35,000 rehab budget from cash.

That is why an 85% LTC loan does not mean the borrower brings only 15% of the project cost to closing. Points, closing costs, and unfunded rehab sit on top of the equity gap.

The four costs that surprise first-time borrowers

1. Points are charged on the commitment

Points are an upfront fee expressed as a percentage of the loan. They are typically charged on the commitment, not the initial advance.

In the example, 2 points on a $157,250 commitment is $3,145:

Points = loan commitment × points %

If the borrower only received $150,000 at closing, the effective cost of the points on the cash advanced is slightly higher than 2%. That is one reason the note rate and the all-in cost diverge.

Points are usually paid at closing, so they belong in cash to close. They also belong in the total finance charge.

2. Interest can be charged on drawn funds or the full commitment

Interest-only hard money loans accrue interest monthly. The question is what balance the lender charges against.

Drawn-balance interest accrues only on the initial advance and the rehab draws that have been released. The balance grows as the rehab is funded, so early interest is lower than interest at full draw.

Commitment interest, sometimes called Dutch interest, accrues on the entire commitment from day one, including rehab money that has not been drawn. The borrower pays interest on money the lender has not released.

The difference can be material when the holdback is large. In the example, the first month of interest on the drawn balance is about $1,375. At full draw, the monthly interest is about $1,441. Under Dutch interest, the lender charges the full-draw amount from the first month.

The calculator lets you switch between the two methods. If the term sheet does not say which one applies, ask. It is an economic term, not a formatting detail.

3. Lender, third-party, and draw fees

A hard money quote can include several flat fees:

• Lender fees: underwriting, processing, document preparation, and similar charges.
• Third-party closing costs: appraisal, title, escrow, legal, and recording.
• Draw fees: a per-inspection or per-draw charge, often $100 to $250 per draw.
• Extension fees: a percentage of the commitment if the loan is not repaid by maturity.

The calculator groups them so you can see how much of the total finance charge comes from fees rather than interest. In the demo deal, points and fees total $7,745, while interest totals $8,449. Fees are nearly half of the finance charge.

That is not unusual for a six-month loan. It is also why comparing only the interest rate can point you to the wrong lender.

4. Minimum interest and extension terms

Two terms can make a short loan cost more than the headline schedule suggests.

A minimum interest period requires a minimum amount of interest even if the loan is repaid early. A three-month minimum on a loan repaid in two months still charges three months of interest.

An extension fee applies when the loan runs past maturity. The calculator adds one extension fee when the hold exceeds the term. It does not model multiple extensions or a default rate.

Both terms are negotiable in some deals and fixed in others. They should be on your comparison sheet.

Cash to close is not the same as total cash invested

Cash to close is the money required at the closing table:

Cash to close = purchase price + purchase closing costs + points + lender fees + third-party costs + unfunded rehab − initial advance

In the example:

Cash to close item	Amount
Purchase price	$150,000
Purchase closing costs	$4,000
Points	$3,145
Lender fees	$1,500
Third-party costs	$2,500
Unfunded rehab	$27,750
Less initial advance	−$150,000
Cash to close	$38,895

That is the cash needed to close the purchase and the loan. It is not the full cash requirement for the project.

During the hold, the borrower also pays:

• Monthly interest.
• Monthly holding costs such as taxes, insurance, utilities, and security.
• Per-draw fees.
• Any extension fee.

The calculator adds those to cash to close to get total cash invested:

Total cash invested = cash to close + holding costs + interest + draw fees + extension fee

In the demo deal, total cash invested is $50,644. That is the denominator for the ROI calculation. It is also the number to compare with the cash that comes back at the exit.

The exit is part of the loan cost

A hard money loan is usually repaid from a sale or a refinance. The calculator models a sale:

Net sale proceeds = exit value − selling costs

Net profit = net sale proceeds − loan payoff − total cash invested

ROI = net profit ÷ total cash invested × 100

In the demo deal, the exit value is $260,000, selling costs are 6% ($15,600), the loan payoff is $157,250, and total cash invested is $50,644. Net profit is $36,506, and ROI is 72.08%.

The break-even sale price is the sale price at which net profit is zero:

Break-even sale price = (total cash invested + loan payoff) ÷ (1 − selling cost %)

For the demo deal, the break-even sale price is about $221,164. That is the number to compare with a conservative exit value. A deal that needs a near-ARV sale to break even is carrying more risk than the headline profit suggests.

How to compare two hard money term sheets

A useful comparison does not start with the rate. It starts with the same deal assumptions and the same exit.

1. Set the property and exit inputs. Use the same purchase price, rehab budget, ARV, exit value, selling costs, and hold period for both offers.
2. Enter each lender’s sizing limits and terms. Change the LTC, ARV LTV, rate, points, fees, draw terms, and interest basis.
3. Compare the total finance charge. This is the cleanest measure of the loan’s cost before the exit.
4. Compare cash to close and total cash invested. A larger loan can reduce cash to close while increasing the payoff and interest.
5. Compare net profit, ROI, and break-even. The cheapest loan is the one that leaves the best risk-adjusted outcome, not necessarily the lowest rate.
6. Test a longer hold. A loan with low points but a high rate can become expensive if the rehab runs long. A loan with a high extension fee can be costly at maturity.

The calculator’s A/B comparison normalizes two saved term sheets by commitment, cash to close, interest, fees, finance charge, annualized cost, net profit, ROI, break-even, and hold period.

Why the annualized cost is not the APR

The annualized cost in the calculator is:

Annualized cost = total finance charge ÷ loan commitment ÷ (hold months ÷ 12) × 100

It is a useful comparison tool because it puts a six-month loan and a twelve-month loan on a similar footing. It is not a Reg Z APR.

An APR has a defined calculation under consumer credit rules and includes certain finance charges with a specific timing convention. This calculator is an educational estimate. It does not model the time value of money, and it does not replace the disclosures in a loan estimate or a lender term sheet.

The annualized cost is still useful for one question: how expensive is this loan relative to its size and duration? A loan with a 20% annualized cost is expensive even if the note rate is 11%, because the fixed fees are being spread over a short period.

What the calculator does not capture

The model is intentionally focused on the short-term loan and the exit. It does not include:

• Amortizing payments, a balloon payoff, or a refinance.
• Prepayment penalties, late fees, or default interest.
• State-specific fee schedules and usury limits.
• Rent received during the hold or lease-up income.
• Construction overruns beyond the rehab budget.
• Income taxes, depreciation, and entity costs.
• A failed exit, failed refinance, or foreclosure.

Those items can change the answer. A deal that looks profitable in the calculator can still fail if the rehab runs long, the exit softens, or the lender will not extend.

A practical underwriting sequence

Use the calculator as a screen, then verify the assumptions that matter most.

1. Confirm the loan sizing. Ask the lender how it calculates the commitment, the initial advance, and the holdback. Get the LTC and ARV LTV caps in writing.
2. Build the cash to close. Include purchase closing costs, points, lender fees, third-party costs, and unfunded rehab. Do not assume the loan funds the full rehab budget.
3. Model the interest basis. Ask whether interest is charged on the drawn balance or the full commitment. Model the more expensive one if the answer is unclear.
4. Stress the hold. Add two or three months. Check whether the extension fee applies and whether the lender requires a minimum interest period.
5. Stress the exit. Lower the sale price and raise selling costs. Compare the result with the break-even sale price.
6. Compare the offers on total cost. Use the same deal assumptions for every lender. A lower rate with higher points and fees may not be the cheaper loan.

The goal is not to find the lowest payment. It is to know what the loan costs, how much cash the deal requires, and what has to happen at the exit for the deal to work.

Run the numbers in the hard money loan calculator, then use the BRRRR cash-left guide to connect the short-term loan to the refinance.