How Hard Money Lenders Structure Loans

Using hard money lenders might provide you with a viable option when you are having tough financial times. In order to successfully use a hard money loan, you need to understand how a typical loan is structured. Here are the basics of the structure of hard money loans.

Hard Money Loans

A hard money broker is an individual who works outside of the traditional lending industry. This is an individual who has extra money to lend and wants to bring in a higher return on his investment. Most of the lending decision will be based on the individual's preference for risk and ability to do the loan. This means that people who have bad credit or high debt ratios can still use hard money loans to solve a financial crisis.

High Interest

The first aspect that you will notice about most hard money loans is that they carry very high interest rates. These rates will often be double or triple what you could get with a bank or credit union. However, borrowing from a bank or credit union is most likely not an option or else you would not be considering a hard money lender. These lenders know that they are the last resort, and they charge accordingly. Just be prepared to pay handsomely for the loan that you need.


Many hard money lenders will set up a flexible payment schedule for you. During the life of the loan, you may be required to pay only the interest on the loan. Making interest-only payments allows you a lot of flexibility in your financial situation. These lenders know that you most likely do not have much money and, therefore, are willing to postpone any payments on the principal of the loan. During the life of the loan, this can make it a lot easier on you overall.

Balloon Payment

Although you are making only interest payments during the life of the loan, you will most likely have to face a large balloon payment at the end of the loan. Most hard money loans are set up to be balloon loans. This means that the entire amount of the principal of the loan will be due all at once at the end of the loan. This means that you need to make some type of preparation for retiring the loan balance. Whether you plan on saving up and paying it off, refinancing, or selling the property that secures the loan, you will have to do something to pay it off.


Many of these loans also come with very stiff penalties. For example, if you are late on a payment, you might be charged a significant late fee. Many hard money loans will also come with a prepayment penalty. A lender knows that you are probably going to pay off the loan before the balloon payment is due, and he wants to get some extra money out of this transaction. Make sure that you understand all of the fees and penalties that are involved with your loan.

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