This guide breaks down every component of hard money loan pricing. Points. Interest rates. The critical difference between loan-to-cost and loan-to-value. The fees that show up at closing. By the end, you will know exactly how to evaluate a term sheet and spot when a deal in Maryland still works despite the higher financing costs.

What This Article Covers

What Are Origination Points and How Do They Work?

A point equals one percent of the loan amount. Simple as that. If you borrow $300,000 and the lender charges 2 points, that is $6,000 in origination fees. Most private lenders charge between 1 and 4 points, with 2 to 3 points being the most common range. Here in Maryland, the average has been running around 3.7 points based on recent market data.

Here is what catches new investors off guard: points typically get deducted from your loan proceeds at closing. You do not write a separate check for them. So if you are getting a $200,000 loan with 2 points, you actually receive $196,000 at the closing table. But you still owe the full $200,000 when the loan comes due. This effectively increases your cost of borrowing beyond just the stated interest rate.

Why do points vary so much between lenders? Risk. A deal with 60% loan-to-value is less risky than one at 85%. An investor with ten successful flips under their belt presents less risk than someone doing their first project. Smaller loan amounts often carry higher points because the lender’s fixed costs for underwriting and servicing that loan do not scale down proportionally. That $75,000 loan takes almost as much work to process as a $300,000 loan.

When comparing lender quotes, do not fixate on points alone. One lender might charge 2 points plus $3,000 in additional fees. Another might charge 3 points with no other fees. The total cost could be identical. Always calculate your TOTAL upfront cost before deciding which lender offers the better deal.

Current Hard Money Interest Rates in Maryland

The Maryland hard money market currently sees rates between 9.5% and 12% for first-position loans. Based on Q2 2025 data from industry tracking sources, the average sits around 10% to 11%. That is significantly higher than conventional investment property mortgages, which run in the 7% to 7.5% range. But comparing hard money to conventional financing misses the point entirely.

Hard money exists because conventional lenders will not touch fix-and-flip deals. Try getting a bank to fund a distressed property that needs $80,000 in renovations. They will politely show you the door. Or they will take 45 days to close, and by then some cash buyer has already grabbed the property. Speed and flexibility come at a premium. That is the trade-off you are making.

Several factors affect what rate you will receive. Your experience matters. Investors with a track record of successful projects typically see better rates than first-timers. The property’s condition and location factor in as well. A straightforward flip in a strong Baltimore County neighborhood carries less risk than a project in an area with limited buyer demand. Lower loan-to-value ratios almost always result in better rates because the lender has more cushion if something goes wrong.

Second-position hard money loans, where another lender holds the first mortgage, typically run 12% to 14%. The higher rate reflects the increased risk. If the borrower defaults, the first-position lender gets paid before the second-position lender sees a dime.

Loan-to-Cost vs. Loan-to-Value: The Critical Distinction

This trips up more investors than any other concept in hard money lending. Loan-to-value and loan-to-cost are not interchangeable. They measure completely different things, and understanding the distinction will directly affect how much you can borrow and how much cash you need to bring to the deal.

Loan-to-Value (LTV) compares the loan amount to the property’s value. For hard money rehab loans, lenders typically use the after-repair value (ARV). If a property will be worth $400,000 after renovations and the lender offers 70% LTV, your maximum loan is $280,000. The calculation is straightforward: Loan Amount divided by Property Value equals LTV percentage.

Loan-to-Cost (LTC) compares the loan amount to your total project cost. That includes both the purchase price AND the renovation budget. Buy a property for $200,000 and plan $75,000 in renovations? Your total project cost is $275,000. At 85% LTC, you could borrow up to $233,750.

Here is where it gets interesting: most hard money lenders evaluate BOTH metrics and use whichever results in the lower loan amount. A lender might advertise 85% LTC and 70% ARV. On paper, that sounds generous. But the more restrictive number always wins. Consider this example:

  • Purchase price: $180,000
  • Renovation budget: $60,000
  • Total project cost: $240,000
  • After-repair value: $320,000
  • 85% LTC would allow: $204,000
  • 70% ARV would allow: $224,000

In this case, the LTC constraint limits you to $204,000 even though the ARV math would support a larger loan. You would need to bring $36,000 in cash to cover the gap between your $204,000 loan and your $240,000 total project cost.

Why do lenders use both metrics? LTC ensures you have skin in the game throughout the project. It prevents over-leveraging on the development side. LTV protects the lender’s exit if they need to foreclose. They want to know they can sell the finished property and recover their capital. Both metrics serve different risk-management purposes.

Contractors and investor walking through renovation project

Loan Terms, Balloon Payments, and Interest-Only Structures

Hard money loans are designed to be short-term financing. Typical terms range from 6 months to 3 years, with 12-month terms being the standard for fix-and-flip projects. This is not buy-and-hold financing. It is project financing meant to bridge the gap between acquisition and either sale or refinance into permanent debt.

Most hard money loans feature interest-only payments during the term. You pay only the accrued interest each month. The principal balance stays the same throughout. On a $250,000 loan at 10% annual interest, your monthly payment would be approximately $2,083. That payment does not reduce what you owe. It just services the debt while you compelte your project.

The balloon payment is where the ENTIRE principal becomes due. At the end of your 12-month term, you owe that full $250,000 in one lump sum. For fix-and-flip investors, this gets paid from the sale proceeds. For BRRRR investors using the buy, rehab, rent, refinance, repeat strategy, the balloon gets satisfied when you close on your conventional refinance. Either way, you need a clear exit strategy before you take on the loan.

What happens if your project runs long and you cannot pay off the loan by maturity? Extension fees kick in. These typically range from 0.25% to 1% per month. On a $300,000 loan, a 3-month extension at 0.5% per month adds $4,500 to your costs. Some lenders are more flexible than others on extensions, but nobody hands them out for free. Build a realistic timeline with buffer room, and you will avoid these charges.

Dutch Interest vs. Non-Dutch Interest

This is one of those industry details that can significantly impact your total loan cost, yet most borrowers never think to ask about it. Dutch interest and non-Dutch interest (also called staged or as-disbursed interest) describe how lenders calculate interest on rehab funds that have not yet been released to you.

Dutch interest means you pay interest on the ENTIRE committed loan amount from closing day, regardless of whether you have drawn those funds yet. If your loan has $150,000 for purchase and $100,000 for renovations, you are paying interest on the full $250,000 from day one. Even if you have only drawn $20,000 of the rehab funds by month two, you are still paying interest on money sitting in the lender’s account.

Non-Dutch interest charges you only on funds that have actually been disbursed. In the same scenario, you would pay interest on $150,000 at closing. When you draw $30,000 for demolition and framing, your interest-bearing balance increases to $180,000. This aligns your interest costs with your actual capital deployment.

The difference can add up. On a 6-month project with $100,000 in rehab funds at 10% interest, Dutch interest costs you roughly $5,000 on those rehab funds whether you draw them gradually or all at once. Non-Dutch interest might cost $2,500 to $3,500 depending on your draw schedule. That is a meaningful difference on your project profit.

Always ask which method a lender uses. It will appear in your loan documents, typically in a section addressing how interest is calculated on construction or renovation funds. If you have a choice between similar lenders, non-Dutch interest puts more money in your pocket.

Closing Costs and Additional Fees

Beyond points and interest, expect closing costs to run 2% to 5% of your loan amount. These cover the various third parties and services required to properly document and secure the loan. Here is what typically shows up on a hard money closing statement:

Underwriting and processing fees: $500 to $2,000. This covers the lender’s work evaluating your deal, reviewing documentation, and preparing your loan package. Some lenders bundle this into their points while others itemize it separately.

Appraisal or valuation fees: $300 to $600 for standard residential properties. More complex or larger properties can run higher. Some hard money lenders skip formal appraisals in favor of broker price opinions or desktop valuations, which reduces cost but provides less detailed analysis.

Legal and document preparation: $500 to $2,500. Someone has to draft the promissory note, deed of trust, and various closing documents. The complexity of your deal affects this cost.

Title insurance and escrow: $500 to $2,000. The title company conducts a search to ensure no unknown liens or claims exist against the property. Title insurance protects the lender (and optionally you) against future title problems. These costs scale with property value.

Recording fees: $50 to $300. The county charges fees to record the deed of trust in public records. Maryland counties each have their own fee schedules, which you can verify through Maryland Land Records.

Property insurance: Required on every hard money loan. You will need a policy naming the lender as loss payee. For properties under renovation, you may need a builder’s risk policy rather than standard hazard coverage. Costs vary significantly based on property type, condition, and coverage amounts.

When you request a loan estimate, ask for an itemized breakdown of all fees. A lender quoting lower points but higher fees might cost more overall than one with higher points and minimal additional charges. Do the math on TOTAL cost to close before committing.

Down Payment Requirements

Hard money lenders want to see that you have capital at risk in the deal. That “skin in the game” ensures your interests align with theirs. If the project goes sideways, both parties lose money. This is fundamentally different from conventional lending where lenders primarily evaluate your personal income and credit history.

Down payment requirements typically range from 10% to 40% depending on several factors. Experienced investors with strong track records can sometimes secure financing with down payments as low as 10% to 15%. First-time borrowers or those with weaker credit profiles usually face requirements in the 25% to 40% range.

The calculation can be confusing because lenders express it differently. Some quote down payment as a percentage of purchase price. Others frame it as the equity you are contributing relative to total project cost or ARV. Make sure you understand EXACTLY how your lender defines down payment so you know how much cash you need to bring.

Using our earlier example with an 85% LTC constraint on a $240,000 total project cost, your required contribution is $36,000 (the 15% the lender is not financing). But that is not your only cash need. You also need reserves for closing costs, initial renovation expenses before your first draw is released, and carrying costs like loan payments, taxes, and insurance during the project.

A common mistake is calculating the down payment and forgetting everything else. Conservative cash flow planning means having at least 20% more capital available than your down payment alone. Unexpected costs happen on EVERY project. The investors who survive are the ones who planned for them.

How Rehab Draws Work

When a hard money lender funds your renovation budget, they do not hand you the entire amount at closing. The money sits in an escrow account and gets released in draws as you complete phases of the work. This protects the lender by ensuring their capital actually goes into improving the property rather than disappearing into other uses.

The draw process starts before closing when you submit a detailed renovation budget. This budget breaks down every category of work with associated costs. The more granular your budget, the smoother your draw requests will go. Lump-sum line items like “labor: $30,000” create problems because nobody can verify what portion of that $30,000 applies to which project phase.

To request a draw, you submit documentation showing work has been completed. Most lenders require photos, contractor invoices, and sometimes lien waivers confirming the contractor has been paid for the phase. The lender may send an inspector to verify the work matches what you are claiming before releasing funds.

Draw timing matters for cash flow. You typically need to front the money for a phase of work, then request reimbursement through the draw process. If your lender takes 5 to 7 days to process draws, you need enough working capital to cover that gap. Some lenders process faster, sometimes within 24 to 48 hours for straightforward requests.

Smart investors structure their renovation budgets to align with how work actually flows. Separate line items for rough electrical versus finish electrical. Different categories for demolition, framing, and trim work. This lets you draw funds as each phase completes rather than waiting until all related work is done. Better budget structure equals better cash flow management.

Putting It All Together: Evaluating a Hard Money Deal

When a term sheet lands on your desk, here is how to evaluate it. Start with total cost to close: points plus all itemized fees. Then calculate your total interest expense based on your realistic project timeline. Add in any extension fees if there is a chance you might run long. Factor in your down payment and the cash reserves you will need for operating expenses during the project.

That total financing cost should fit comfortably within your projected profit margin. If a deal pencils out with only $20,000 in profit after $15,000 in financing costs, you have almost no room for error. One cost overrun or market hiccup wipes out your return. Good deals should support the financing costs and still leave meaningful profit.

The investors who build sustainable flipping businesses understand these numbers cold. They do not get surprised by closing costs. They know whether their lender uses Dutch or non-Dutch interest. They structure their renovation budgets to optimize draw timing. This is not glamorous work, but it is the difference between investors who last and those who flame out after a few deals.

If you are ready to discuss a specific project, submit a loan application with no cost and no obligation. I will personally review Maryland deals and give you straight feedback on whether the numbers work.

The information provided here is for educational purposes only and does not constitute financial or investment advice. Always perform your own due diligence and consult with qualified professionals before making investment decisions.

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Hard Money Points and Rates