Hard money loans can be a game-changer for real estate investors who need speed, flexibility, or funding when the banks say no.

But let’s be honest—they’re not cheap.

That doesn’t mean they’re a bad deal. In fact, when used right, a hard money loan can fuel massive returns. But you’ve got to understand the costs upfront—and know how to play it smart.

In this guide, we’ll break down what hard money loans really cost, where the money goes, and how to make them work to your advantage.

1. Interest Rates: Why They’re Higher (and When It’s Worth It)

Hard money lenders take on more risk. They move fast, lend on properties banks won’t touch, and work with complex borrower profiles.

That’s why rates are typically 9% to 12%, and sometimes even higher.

Yes, that’s more than your average bank loan. But you’re paying for speed, flexibility, and access to capital—especially when timing is critical.

Tip: Only use hard money when the return on your deal comfortably outpaces the cost of borrowing. If you’re making 30% on a flip, a 10% loan is still a win.

2. Points and Upfront Fees: What to Expect

Most hard money lenders charge 1.5 to 3 points (a “point” is 1% of the loan amount). So if you’re borrowing $300,000 and paying 2 points, that’s $6,000 due at closing.

You may also pay:

  • Underwriting fees
  • Appraisal or BPO costs
  • Loan processing or doc prep fees

Make sure to ask for a full fee sheet before signing anything.

Tip: Some fees are negotiable, especially if you’re a repeat borrower or bringing a strong deal to the table. At Lending Bee we offer Zero points program for some types of the deals. Learn more about them here.

3. Prepayment Penalties (Or Lack Thereof)

Most hard money loans don’t have prepayment penalties—especially for fix-and-flip deals. That’s a win for investors looking to close fast, rehab quickly, and pay off early.

However, always confirm. If there is a penalty, factor it into your hold time and projected profits.

4. Monthly Payments and Interest-Only Structure

Most hard money loans are interest-only, meaning your monthly payments cover interest, not principal.

Let’s say you borrow $200,000 at 10% interest:

  • Monthly payment = ~$1,666
  • No principal reduction until payoff

This keeps payments lower and predictable. The downside is that you don’t build equity during the loan. So your exit strategy has to be airtight.

Tip: Budget for monthly payments and set aside funds for a smooth exit, whether that’s a refinance or a flip sale.

5. Loan Term: Clock’s Ticking

Hard money loans are short—typically 6 to 18 months. That’s both a benefit (quick turnaround) and a risk (tight deadlines).

Miss your maturity date? You could face extension fees or default penalties.

That’s why it’s critical to have a clear exit strategy from day one. Are you flipping? Refinancing? Holding and leasing? Know the plan and have a backup.

Tip: At Lending Bee, we work with borrowers upfront to structure realistic timelines and offer flexible extensions if needed.

6. The Real Math: Total Cost vs. Total Profit

Let’s break down an example:

  • Purchase Price: $250,000
  • Rehab: $50,000
  • ARV: $400,000
  • Hard Money Loan: $260,000 at 10%, 2 points, 12-month term

Costs:

  • Points: $5,200
  • Interest (12 months): $26,000
  • Closing/fees: $3,000
  • Total Carrying Cost: ~$34,200

If you sell at $400,000, minus rehab and loan costs—you’re still clearing a solid profit.

Tip: Always run your numbers with conservative estimates. Build in buffer room. And work with a lender who understands investor math.

7. How to Make Hard Money Work for You

Here’s the bottom line:

  • Use it for the right deals. The speed and access are worth the cost—if the return justifies it.
  • Don’t use it for long-term holds unless you plan to refinance quickly.
  • Know all the costs upfront. Don’t just focus on the rate.
  • Work with an investor-friendly lender who wants your deal to succeed.

At Lending Bee, we work with real estate pros every day. We don’t just hand out money—we help you use it smartly.

Fast Money Isn’t Free Money—But It Can Be the Smartest Money

Yes, hard money costs more. But when used right, it can unlock deals, build momentum, and generate serious profit.

Know what you’re paying. Know what you’re earning. And partner with a lender that helps you turn leverage into returns.

Ready to put hard money to work? Let’s talk about how Lending Bee can help.