How to read a hard money term sheet

A hard money term sheet is usually one page. That page will state a rate and a point count prominently, and it will state the things that actually determine your cost in smaller type or not at all. This is not necessarily deceptive - it is the format the industry uses - but the effect is the same either way.

Here is what to look for, in the order it matters.

1. What is the loan amount, exactly

You will see two numbers or one. If one, ask which it is. The total facility is purchase money plus rehab holdback. The initial funding is what actually wires at closing. Points and interest may be calculated on either. A term sheet that says "2 points" without saying on what is incomplete.

2. How does interest accrue

The most important line on the page, and the one most often missing. Three possibilities:

On the full loan amount from day one, including rehab money still sitting with the lender. Most expensive by a wide margin.
On the drawn balance - you pay interest on money as you receive it. Materially cheaper and worth paying a higher nominal rate for.
On the initial funding only, with rehab draws not accruing until drawn. Best case, less common.

3. Is there minimum or guaranteed interest

Look for the words minimum interest, guaranteed interest, yield maintenance, or a prepayment clause expressed in months. It means you owe that many months of interest even if you pay off in week six. 3 to 6 months is common.

On a fast flip this is frequently the largest single hidden cost. If you plan to be out in four months and the note guarantees six, you have just been charged 50% more interest than your model shows.

4. What is the term, and what does an extension cost

Get the extension fee, the extension length, the number of extensions available, and whether granting one is at the lender's discretion. "12 months" with no extension language is a worse loan than "9 months with two 3-month extensions at 0.5%", even though the first number looks longer.

5. The full fee schedule, in writing

Ask for it as a document, not as an answer on a call. There are usually nine fees; a term sheet typically names two or three. The fee stack guide lists all of them with ranges.

6. How do draws work

Number of draws permitted, fee per draw, inspection turnaround, whether draws are reimbursed after completion or advanced before, and whether there is a minimum draw size. A lender who allows four draws on a $120,000 rehab is asking you to float $30,000 at a time.

7. Is there an exit fee

Charged at payoff, typically 0-2%. It will not be in the rate and often is not in the headline fee list. Ask specifically: is there any fee payable at payoff.

8. Recourse and the guarantee

Almost all hard money is recourse - you sign a personal guarantee even though the borrower on paper is your LLC. Check whether the guarantee is full or limited, whether a spouse must sign, and whether there is a bad-boy carve-out. See personal guarantees.

9. Cross-collateralisation

Some lenders secure the loan against another property you own in addition to the subject. This can unlock leverage you could not otherwise get. It also means a bad project can take a good asset with it. Never agree to it casually. See cross-collateralisation.

10. Default rate and cure period

What rate applies on default, from what date, and how long you have to cure. Default rates in the high teens to high twenties are standard. A short or absent cure period is a real red flag.

11. Who controls the appraisal, and what happens if it comes in low

If the valuation comes in under expectations, does the loan amount reduce automatically? Do you forfeit any deposit? Is a second opinion permitted and who pays for it?

12. What is refundable, and to whom is it paid

Any money you send before closing should go to a licensed title or escrow company, and you should know what is refundable if the deal dies. Deposits paid directly to a lender, non-refundable in all circumstances, are how advance-fee fraud is structured - see advance-fee scams.

The email to send

Send this verbatim to every lender quoting you. The answers are more informative than the quotes.

Is interest charged on the full loan amount or on the drawn balance?
Is there minimum or guaranteed interest, and for how many months?
Are points charged on the total facility or the initial funding?
Can you send the complete fee schedule as a document?
How many draws are included, what is the fee, and what is the inspection turnaround?
Is there an exit or back-end fee?
What does an extension cost, how long is it, and is it discretionary?
What is the default rate and the cure period?
Who is the guarantee required from?

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.