What is Dutch interest on a hard money loan?

Dutch interest means the borrower pays interest on the full committed loan amount from day one, including holdback funds that have not yet been drawn. On a $280,000 loan with $80,000 holdback, a Dutch interest borrower pays interest on $280,000 from the first payment even if only $200,000 has been disbursed. Non-Dutch interest charges only on funds actually drawn, increasing as holdback draws are made.

Is Dutch or non-Dutch interest better for the borrower?

Non-Dutch interest is better for the borrower. Under a non-Dutch structure, interest is charged only on funds actually disbursed, which reduces carrying costs during the early renovation phase before holdback draws are made. Dutch interest charges on the full committed amount from day one, meaning the borrower pays interest on money they have not yet received. The cost difference is most significant on loans with large holdbacks and long renovation timelines.

How common is Dutch interest on hard money loans?

Dutch interest is more common than most borrowers expect — many hard money lenders use it as their standard structure without prominently disclosing it. Always ask before signing: 'Do you charge interest on the full committed loan amount or only on funds drawn?' If a term sheet does not specify, assume Dutch until confirmed otherwise and factor the difference into your total cost comparison.

Glossary › Glossary

Dutch Interest vs. Non-Dutch Interest: What It Means for Your Hard Money Loan

By Broker Cheetah Editorial Team · April 2026

Direct Answer

Dutch interest means the borrower pays interest on the full committed loan amount from the first day of the loan — including any holdback funds that have not yet been drawn. Non-Dutch interest means the borrower pays interest only on funds actually disbursed. Non-Dutch is better for the borrower on loans with large holdbacks. Always ask which structure applies before signing a term sheet.

The Core Difference

Dutch interest example:

Total loan: $280,000 (acquisition: $200,000 + holdback: $80,000)
Interest rate: 11%
Monthly interest on Dutch basis: $280,000 × 11% ÷ 12 = $2,567/month from day one
The borrower pays interest on the full $280,000 even in month one when only $200,000 has been disbursed

Non-Dutch interest example:

Same loan: $280,000
At close, $200,000 disbursed, $80,000 held
Monthly interest in month one: $200,000 × 11% ÷ 12 = $1,833/month
As draws are taken, interest increases proportionally
After all holdback is drawn: same $2,567/month as the Dutch example

The difference in this example is $734/month during the renovation phase. Over a 4-month renovation, that is roughly $2,936 — real money that goes directly to either the lender (Dutch) or stays in the borrower's pocket (non-Dutch).

Why Dutch Interest Exists

Dutch interest exists because the lender has committed the full $280,000. Even if the borrower has not drawn the holdback yet, those funds are reserved and cannot be lent to another borrower. The lender charges interest on the full committed amount to compensate for that reserved capital.

From the lender's perspective, Dutch interest is a fair reflection of the actual cost of making the commitment. From the borrower's perspective, it is interest paid on money not yet received.

How Common Is Dutch Interest?

More common than borrowers realize. Many hard money lenders use Dutch interest as their standard structure, and many borrowers do not ask about it until after they have signed.

Some lenders advertise non-Dutch structures as a selling point. Many do not advertise either way. If a lender's term sheet or program guide does not specify, ask: "Do you charge interest on the full committed loan amount or only on funds drawn?"

When It Matters Most

Dutch interest is most significant when:

The holdback is large relative to the total loan. If the holdback is 50% of the total loan (a $100,000 acquisition + $100,000 rehab), the interest cost difference between Dutch and non-Dutch is substantial in the early months before draws are made.

The renovation phase is long. A 6-month renovation with Dutch interest means 6 months of interest on undrawn holdback. A 2-month renovation means 2 months. Longer projects amplify the Dutch interest cost.

The borrower is cash-flow-constrained. If the borrower is managing cash carefully, Dutch interest increases their monthly carrying cost during the exact phase when they are also spending on renovation.

Partial Dutch Structures

Some lenders use a hybrid: they charge Dutch interest on the first 50% of the holdback from day one, and non-Dutch on the remaining 50% until drawn. Or they charge a reduced interest rate on the undrawn portion. Ask specifically what the structure is — the nuance is in the details.

How to Compare Across Lenders

When comparing term sheets, calculate the total interest cost over your expected project timeline for each lender — not just the rate:

How much holdback?
Dutch or non-Dutch?
Expected renovation timeline?
At what rate?

Total interest cost = months at each disbursement level × balance at that level × monthly rate.

A lender with a lower rate but Dutch interest may cost more over a 5-month renovation than a lender with a higher rate and non-Dutch structure. Run the math before you pick the lender.

Now Check a Real Deal

Know the terms, then check a real deal. Verify your email and receive 5 free Credits for a residential lender search or one quote-request batch to as many as four lenders. No card required.

Try It Free →