Guide
The most expensive word on your term sheet
Whether interest accrues on the full loan or only on the money you have actually drawn is the biggest cost difference between two lenders quoting the same rate. Here is the arithmetic.
Your rehab budget is not in your bank account. It sits with the lender and is released in draws as work is completed. The question nobody asks at the term sheet stage is whether you are being charged interest on it while it sits there.
At many lenders, you are.
The arithmetic
Take a $300,000 facility: $240,000 for the purchase, $60,000 held back for rehab, drawn down over roughly six months as the work progresses. Rate 11%, held for seven months.
| Accrual basis | Interest charged | Difference |
|---|---|---|
| On the full $300,000 from day one | $19,250 | — |
| On the drawn balance (average $270,000) | $17,325 | -$1,925 |
| On the $240,000 initial funding only | $15,400 | -$3,850 |
That is a 25% swing in the interest bill on a modest rehab. Scale the rehab up and the gap grows with it - on a $500,000 ground-up construction budget, the difference runs into five figures.
Why lenders do it
Not, generally, out of malice. A lender who commits $300,000 to your project has to hold or fund $300,000 whether or not you have drawn it, and their own cost of capital runs on the committed amount. Charging on the full facility is a defensible way to price that.
The problem is not that it exists. The problem is that it is priced identically to loans that do not do it, and is almost never disclosed as a cost difference. Two lenders quote "11% and 2 points" and one of them is 25% more expensive.
How to compare properly
- Ask every lender, in writing: is interest charged on the full loan amount or the drawn balance?
- Put each quote through the true-cost calculator with the same hold period and rehab schedule.
- Compare total dollars of interest, not rates.
The related question about draw pacing
If you are paying interest on the full facility, drawing slowly costs you nothing extra - the meter runs regardless. If you are paying on the drawn balance, drawing only what you need, when you need it, is real money. Your optimal behaviour is different depending on the answer, which is another reason to know it before closing rather than after.
Interest reserves are a third variant
Some lenders fund an interest reserve out of your loan proceeds and pay themselves from it monthly. Convenient, and it means you are borrowing the interest, paying points on it, and paying interest on it. Reserves are not free even though nothing leaves your account.
Questions people actually ask
What is the typical interest rate for a hard money loan?
Most quotes land in 10% to 12%, with fix-and-flip paper generally 9.0% to 14.0% and first-time borrowers or unusual collateral running up toward 18.0%. Ranges reflect pricing lenders and industry write-ups publicly advertised as of August 2026. They are advertised ranges, not transaction data - unlike conventional mortgages, private lending has no public loan-level dataset, so nobody can honestly claim to know the true national average. Treat them as a sanity check on a quote, not a benchmark you are entitled to.
But the interest rate is the least useful number on the term sheet. A loan at 10% with 3 points, a $1,495 doc fee, six months of guaranteed interest and interest charged on the undrawn rehab holdback is substantially more expensive than a loan at 12% without those terms. Compare all-in cost, never rates.
What's the typical interest on a hard money loan?
See above - 10% to 12% is the common band. The more useful question is what the loan costs in total dollars over the months you will actually hold it, which is what the true-cost calculator computes.
What do points mean on a hard money loan?
One point is one percent of the loan amount, charged up front. Two points on a $300,000 loan is $6,000, usually deducted from your proceeds at closing rather than billed.
The detail that costs people money: ask whether points are charged on the total loan facility or on the initial funding. If you are borrowing $240,000 for the purchase and $60,000 for rehab, two points on the $300,000 facility is $6,000 - but you only receive $240,000 at closing, so you paid 2.5% on the money you actually got. That gap is standard and rarely volunteered.
How much is 2 points on a $50,000 loan?
$1,000. Points are simply a percentage of the loan amount, so two points is 2% - and on a small loan the flat fees matter far more than the points. A $50,000 loan with 2 points ($1,000) plus a $1,495 doc fee and a $750 underwriting fee carries $3,245 of closing cost, which is 6.5% of the loan before a day of interest. Flat fees are why small hard money loans are disproportionately expensive.
What are the fees associated with hard money loans?
There are usually nine, and a term sheet typically leads with two. The full stack is origination points, underwriting or processing, document preparation, valuation, per-draw inspection, wire and servicing, extension, exit or back-end, and minimum or guaranteed interest. The fee stack, line by line walks through each one with the range you should expect and the question to ask about it.
How to calculate hard money loans?
Not the way most calculators do it. The typical online hard money calculator multiplies loan amount by rate by months and adds points. That undercounts real cost, often badly, because it ignores five things: interest charged on the undrawn rehab holdback, minimum-interest clauses, per-draw fees, extension fees on the months you run over, and the flat fees that dominate on smaller loans.
The honest calculation is: (all interest actually charged under the lender's accrual method) + (points on the basis the lender uses) + (every flat fee) + (draw fees x draws) + (exit fee) + (extension fees if you run long), then expressed as an annualised rate on the money you actually had use of. Ours does that: true-cost calculator.