Private money loans bypass traditional banks, letting real estate investors access capital faster—but the cost structure is fundamentally different from conventional mortgages. Understanding exactly what you'll pay helps you decide whether a hard money lender or peer-to-peer platform makes sense for your deal.
Interest Rates: The Primary Cost Driver
Private money interest rates typically range from 8% to 15%, compared to 6–7% for conventional mortgages. The variation depends on your credit profile, property type, loan-to-value (LTV) ratio, and lender risk appetite.
Hard money lenders charge higher rates because they fund quickly (often 7–10 days) and accept projects banks won't touch—fix-and-flips, vacant properties, or borrowers with recent credit issues. Peer-to-peer platforms, which pool capital from individual investors, often sit in the 9–12% range since they face lower origination costs but still price in default risk.
Real example: A $150,000 bridge loan at 12% for six months costs $9,000 in interest alone. If you close in 90 days instead of six months, you save $4,500—which is why speed matters in the rate negotiation.
Origination Fees and Points
Expect upfront fees of 1% to 5% of the loan amount, charged as either points or origination fees.
- 1 point = 1% of the loan amount
- Origination fee = flat percentage or percentage-based cost paid at closing
- Some lenders bundle these; others separate them
A $200,000 loan with 2 points costs $4,000 at closing. On a peer-to-peer platform, the origination fee might be 2–3%, so $4,000–$6,000 upfront.
These fees are non-negotiable with some lenders but worth shopping around for. If you're comparing three private money lenders, negotiate the points aggressively—even dropping from 2.5 to 2 points saves $1,000 on a $200,000 loan.
Underwriting and Processing Fees
Many private lenders charge $500–$2,000 in separate underwriting, processing, or administrative fees. Hard money shops sometimes bundle these into the origination cost; peer-to-peer platforms may be more transparent about itemizing them.
Call ahead and ask for a Loan Estimate so you see the full breakdown before committing time to the application. This prevents surprises at closing.
Exit Strategy Impact on Total Cost
Private money loans are typically short-term (6–24 months). Your exit plan directly affects whether you actually pay those stated interest rates.
Scenario A: 12-month flip
- Loan amount: $200,000 at 11% interest
- Total interest paid: ~$22,000
- 2 points at closing: $4,000
- Total cost: $26,000
Scenario B: 24-month hold
- Same $200,000 at 11%
- Total interest paid: ~$44,000
- 2 points: $4,000
- Total cost: $48,000
If your project stalls and you extend the loan, you're paying interest on a monthly basis, so delays multiply costs fast.
Prepayment Penalties
Some private money lenders charge 0.5% to 2% of the remaining balance if you pay off early. This seems counterintuitive but protects lenders if you refinance quickly or sell earlier than expected.
Always ask: "Is there a prepayment penalty, and if so, when does it expire?" A few lenders waive penalties after 12 months or don't charge them at all—worth comparing before you sign.
Comparison: Hard Money vs. Peer-to-Peer
| Cost Factor | Hard Money Lender | Peer-to-Peer Platform | |---|---|---| | Interest rate | 10–15% | 9–12% | | Points/origination | 2–5% | 2–3% | | Closing timeline | 5–10 days | 14–21 days | | Prepayment penalties | Often yes | Rarely | | Due diligence on property | Quick/less strict | Moderate documentation |
Hard money wins on speed; peer-to-peer typically costs less if you can wait 2–3 weeks for funding.
How to Find Competitive Rates
Contact at least three lenders. Mercoly lets you compare and connect with trusted private money and peer lending providers in one place, so you can evaluate terms side-by-side without cold-calling dozens of brokers.
Get a written Loan Estimate from each. Compare total cost, not just interest rate—a lender quoting 10% with 1 point may be cheaper than 11% with 3 points.
Frequently Asked Questions
Q: Can I negotiate private money rates? Yes, especially with hard money lenders and smaller peer platforms. Your credit, down payment size, property type, and loan amount all create negotiating leverage. Even 0.5% off the rate saves thousands over a 12–24 month loan.
Q: What's the minimum down payment required? Most private lenders require 20–30% down, though some go as low as 10% for strong borrowers or on owner-occupied properties. Higher down payments often secure lower rates.
Q: Should I lock in a rate or let it float? Rate locks typically cost 0.5–1% and protect you if market rates rise before closing. On short-term deals (under six months), a lock is usually worth it for peace of mind; on longer terms, floating may save money if rates drop.
Start comparing quotes today to find the private money option that fits your timeline and budget.