Are you interested in a hard money loan? If you've done some research on hard money loans, you might have found that interest rates on this form of financing can be higher than on a conventional loan. This can make it difficult to determine what a good rate is.
Luckily, there are a few indicators that can tell you if your return is good or if you need to keep searching for the right lender. In this article, we will analyze current rates and where we expect rates to fall in 2024.
What is a Good Interest Rate on Hard Money Loans?
Hard money loans have higher interest rates compared to conventional loans through financial institutions. This is because hard money loans are designed to be a short-term financing solution. As of June 2023, the conventional mortgage rate was lingering around 7%. This makes the average hard money loan rate between 9% and 14%. If your prospective hard money lender gives you a rate within this range, it is probably a fair return.
What Factors Influence Returns on Hard Money Loans?
There are numerous factors that influence returns on hard money loans. First, the market can impact interest rates. If interest rates for conventional loans are lingering around 7%, you can expect hard money loan rates to be a few percentage points higher.
In addition, your financial situation alters the interest rate on your loan. Putting down 20% compared to 5% can have a big impact on your rate. Moreover, if you have a high loan-to-value, lenders might move forward with a higher interest rate as there is more risk associated with your loan.
The property you are financing can also affect your hard money loan return. Fix and flip loans come with different criteria compared to a hard money bridge loan. Working with a lender can help you find the most favorable rate based on your situation.
Will Hard Money Loan Rates Change in 2024?
Like conventional loan rates, hard money loan rates are predicted to decline by the end of 2023 and into 2024. Economists are projecting conventional loan rates to linger between 4% and 5% at the end of 2024. This means we can expect hard money loan rates to be between 6% and 11% in 2024.
Keep in mind that hard money loans aren't designed to be a long-term solution. In fact, you shouldn't hold your hard money loan for over 12 months because there are better alternatives that come with lower interest rates. For example, once you rehab a property, you might be able to secure a traditional 30-year loan with a lower interest rate.
How does your hard money loan rate compare? Keep in mind that hard money loan returns can vary based on the specifics of your situation, such as your down payment, the property being purchased, and other financial factors. To get a personalized rate, reach out to our team at Easy Financing today.