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The interest rate is the most visible cost on a hard money loan — but it is not the only one. Points, draw fees, inspection fees, appraisal costs, extension fees, and minimum interest requirements all add to your total financing cost. Calculating the full picture before you close tells you whether the deal works, and which lender actually costs less when you account for everything.
Interest is calculated as an annual percentage rate applied to the outstanding loan balance (or the full committed amount, depending on whether the loan is Dutch or non-Dutch interest).
Dutch interest: You pay interest only on funds actually drawn. During the renovation phase, you are not paying interest on holdback funds you have not yet received.
Non-Dutch (full-boat) interest: You pay interest on the full committed loan amount from day one, including renovation holdback funds not yet released.
The difference is meaningful on loans with large holdbacks:
On a $300,000 loan where $150,000 is the initial advance and $150,000 is a renovation holdback:
Over a 6-month renovation where holdback is drawn incrementally, the Dutch vs. non-Dutch difference could be $5,000-$8,000 on this size loan.
Points are charged at closing as a percentage of the loan amount. 2 points on a $300,000 loan = $6,000. This is paid upfront — it comes out at closing.
Some lenders charge points on the full loan amount (initial advance + holdback). Others charge only on the initial advance. Confirm which.
Each draw request typically costs $150-$300 for the inspection fee plus any administrative fee the lender charges. On a 5-draw renovation:
Small relative to total cost, but worth factoring in.
The cost of the initial property valuation — paid by the borrower at the time of the appraisal order or deducted from the loan at closing. Full appraisals typically cost $400-$700 for residential; BPOs may be $150-$250.
If the loan has a minimum interest period (commonly 3-6 months), any early payoff triggers the minimum interest cost. Model this against your expected hold period.
If the project runs long and requires an extension, the cost is typically 0.5-2 points of the loan balance or a flat monthly fee. On a $300,000 loan, a 1-point extension = $3,000.
Some lenders charge:
These vary by lender. Ask for a full fee schedule, not just rate and points.
Assumptions:
Interest calculation (Dutch, approximate):
Points: $6,000
Draw fees: $800
Appraisal: $500
Total financing cost: ~$24,900
If the projected profit on this deal is $65,000, financing costs represent 38% of profit — meaningful, but not deal-breaking.
Lender A: 10% rate, 3 points, non-Dutch interest Lender B: 11% rate, 1.5 points, Dutch interest
On the $300,000 loan example with the same 7-month hold:
Lender A advertises a lower rate. Lender B actually costs less.
This is why comparing rate alone is insufficient. Model the full cost for your specific deal before choosing a lender.
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