Sep 19 2018| Comment
What to look out for with hard money loans?
Hard money loans can provide a lot of benefits. Here are some of the downsides of them.
- Interest rates are usually high for hard money loans. It’s not uncommon for the interest rate to go into the double digits. For example, if you take a $100,000 30 year mortgage at 7% APR, you’d pay almost $77000 more in interest payments than a traditional mortgage which will have a 3.5% APR. Most hard money loans are made over a 3-24 month periods, as opposed to traditional loans which can be paid off over 30 years.
- Lack of clear regulations is a problem with hard money loans. Compared to traditional mortgages there is very little regulation of hard money loans.
- Many hard money loans have high fees in addition to high interest rates. For example, hard money lenders might ask for origination fees, underwriting fees, early payment penalties, and more.
- Hard money loans typically have a shorter term than traditional mortgages. For example, hard money lenders will offer loans over a term of 1-2 years, whereas traditional lenders will give 30 years.
- Some traditional lenders will require you to own the property for a minimum length before agreeing to refinance your property. This can cause issues for you if your hard money loan is due before you are eligible for refinancing the loan.