Calculating a hard money loan is not a matter of running an amortisation schedule, because these loans are interest-only and repaid at exit. The real calculation is total project cost of capital — and it depends as much on how long you hold as on what rate you pay.
The calculation
Total cost of capital = (monthly interest × months held) + (points × loan amount) + draw and inspection fees + extension fees + carrying costs
Monthly interest on an interest-only loan is simply the annual rate divided by twelve, applied to the outstanding balance. On a facility with staged draws, the balance rises as funds are released — so early months cost less than later ones.
The five inputs
| Input | What to use | Common error |
|---|---|---|
| Loan amount | Purchase portion plus any rehab drawn | Modelling interest on the full facility from day one when draws are staged |
| Rate | Your actual quoted rate, not an advertised floor | Using a headline rate that assumes an experienced borrower at low leverage |
| Months held | Realistic timeline including permitting, weather, and selling time | Modelling the optimistic case with no contingency |
| Points | Total origination as a percentage of the loan | Ignoring them entirely — on short holds they exceed interest |
| Fees and carrying | Draw fees, inspections, taxes, insurance, utilities, security | Treating these as project overhead rather than cost of capital |
Worked examples
The same loan, the same rate, three different timelines — showing why hold period dominates:
| 4-month flip | 8-month project | 12-month with extension | |
|---|---|---|---|
| Loan amount | $300,000 | $300,000 | $300,000 |
| Points (2%) | $6,000 | $6,000 | $6,000 |
| Interest at ~1% / month | $12,000 | $24,000 | $36,000 |
| Draw fees (3 draws) | $1,500 | $1,500 | $1,500 |
| Extension fee | — | — | $3,000 |
| Carrying costs | $4,000 | $8,000 | $12,000 |
| Total cost of capital | $23,500 | $39,500 | $58,500 |
| Points as % of total | 26% | 15% | 10% |
Two observations that matter. First, doubling the timeline more than doubles nothing else but interest and carrying — yet those two lines drive the total. Second, points matter enormously on the short hold and much less on the long one, which is exactly why comparing lenders on rate alone misleads.
Figures above are illustrative to show the structure of the calculation. They are not quoted terms. Use your own quoted rate, points, and realistic timeline.
The ARV and leverage calculation
Separately from cost, you need to know how much the lender will actually advance. Two formulas govern that:
- Loan to cost (LTC) = loan amount ÷ (purchase price + rehab budget). Measures how much of your total project the lender funds.
- Loan to after-repair value (LTARV) = loan amount ÷ projected value after renovation. Measures the lender's exposure against the finished asset.
Most hard money lenders apply both and lend to the lower result. Your cash requirement is total project cost minus the loan amount, plus closing costs, plus reserves — and that figure is what actually determines whether you can do the deal.
Calculation mistakes
- Ignoring points. The single most common error, and the most expensive on short holds.
- Optimistic timelines. Permitting delays, weather, contractor availability, and selling time all extend the hold. Add contingency months.
- Modelling full loan interest from day one. If rehab funds release in draws, the balance builds over time and early interest is lower.
- Omitting carrying costs. Taxes, insurance, utilities, and security on a vacant property are real and continuous.
- Forgetting the exit costs. The sale or refinance has its own closing costs that belong in the project model.
- Not budgeting an extension. Treat it as a contingency line even when you expect to finish on time.
Terms vary by lender, asset, and market, and change with conditions. Figures here describe what is typical across the private lending market — they are not a quote. Send us the scenario for real numbers.
