1. What is a Hard Money Loan?

A hard money loan is a type of asset-based loan financing through which a borrower receives funds secured by real property. These loans typically have higher interest rates than conventional loans and are often used by real estate investors for short-term financing.

2. How the Payment Calculation Works

The calculator uses the standard loan payment formula:

Where:

• \( P \) — Loan principal amount ($)
• \( r \) — Monthly interest rate (annual rate ÷ 12 ÷ 100)
• \( n \) — Number of monthly payments

Explanation: This formula calculates the fixed monthly payment required to fully amortize a loan over its term, including both principal and interest.

3. Understanding the Formula

Details: The numerator calculates the interest portion, while the denominator accounts for the compounding effect over the loan term. The formula ensures each payment is the same amount throughout the loan term.

4. Using This Calculator

Tips: Enter the loan amount in dollars, annual interest rate as a percentage (e.g., 12 for 12%), and loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why are hard money loan rates higher?
A: Hard money loans are considered higher risk and are typically used for short-term financing, hence the higher interest rates compared to traditional mortgages.

Q2: What's typical for hard money loan terms?
A: Terms usually range from 6-36 months with interest rates between 10-15%, though this can vary based on lender and property.

Q3: Are there prepayment penalties?
A: Many hard money loans have prepayment penalties if paid off within the first 6-12 months to ensure lenders earn minimum interest.

Q4: What's the loan-to-value (LTV) ratio?
A: Hard money lenders typically lend 50-70% of the property's current value (not purchase price) to mitigate their risk.

Q5: Who typically uses hard money loans?
A: Real estate investors, house flippers, and developers who need quick financing or can't qualify for traditional loans.