Guide
Minimum interest: paying for months you do not use
A guaranteed-interest clause means you owe interest whether or not the loan is outstanding. On a fast project it can be the single largest cost in the deal.
Search a hard money note for the words minimum interest, guaranteed interest, minimum yield, or a prepayment provision expressed in months. If any of them are there, part of your interest bill is fixed regardless of how fast you finish.
3 to 6 months is the common range.
Why it exists
A lender's economics on a short loan are dominated by origination cost. Underwriting, valuation and closing a $300,000 bridge loan costs roughly the same whether it stays out for three months or twelve, but the interest income does not. A minimum-interest clause guarantees them a floor.
That is a legitimate business reason. It is still a cost to you, and it is one you can sometimes negotiate away.
What it costs when it binds
The perverse effect is that it penalises exactly the behaviour that reduces the lender's risk. Finishing early is good for everyone and you are charged for it.
The interaction that catches people
A minimum-interest clause combined with full-facility accrual is the most expensive combination in the product. You pay the guaranteed months on the total facility, including rehab money you never drew.
How to handle it
- Ask before you sign, in writing. It is often not on the term sheet at all - it lives in the note, which you see at closing.
- Ask for it to be reduced rather than removed. Going from six months to three is an easier yes than going to zero, and captures most of the value.
- If it cannot move, factor it in and re-rank your quotes. It is a fixed cost, so it should be compared as dollars against every other lender's fixed costs.
- If your project is genuinely fast - a cosmetic flip, a wholesale double-close, a bridge to a scheduled sale - make this your first negotiating priority. It is worth more than a point.
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.
How much do you put down on a hard money loan?
Against as-is value, lenders typically go to 60% to 75%, so 25%-40% comes from you. On a purchase with rehab the more common framing is loan-to-cost: 80%-90% of the purchase price plus 100% of the rehab budget, held back and released in draws.
Do not confuse the down payment with cash to close. Points, flat fees, title, insurance and the first draw you fund yourself all sit on top. Ten to fifteen percent of purchase price is a realistic planning figure for total cash needed on a leveraged flip.
How much down do you need for a hard money loan?
See above - 10% to 20% of purchase is the usual range, before fees and reserves.
Does a hard money lender cover 100%?
Almost never on purchase price, and the offers advertising it usually mean something narrower: 100% of the rehab budget (common and real), or 100% of purchase where the purchase is far below as-is value and the loan is still inside the lender's ARV cap (rare and deal-specific), or 100% with cross-collateralisation against another property you own (real, and it puts a second asset at risk).
Treat a headline promising 100% financing with no cash as the marketing hook it usually is, and read what the offer actually caps at. See the truth about 100% financing.
How long do you have to pay off a hard money loan?
Terms run 6 to 24 months, with 12 months the most common. That is a hard deadline with a fee attached, not a guideline - which is why the exit matters more than the rate.
How do you pay back a hard money loan?
Three ways, and you should know which one before you sign. Sell the property and pay off from proceeds. Refinance into longer-term debt, usually a DSCR rental loan. Or pay it off from other capital. Most hard money loans are interest-only during the term with the principal due as a balloon at the end, so there is no amortisation quietly reducing what you owe.