Renton, WA · Member since 2009 · 127 posts · 15 votes
This has been on my mind for a while.
If economy is expanding, shouldn't there be more money flowing around, hence more people with money, hence more competition in the private lending arena?
Now I understand that the fed regulates "prime" % at which they lend to the big banks, so they lower the rate when the economy needs "easier" financing in order to be stimulated, but that has nothing to do with private lenders.
So, my question is - when the economy is expanding, shouldn't HML become Easy Money Loan?
Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
17y
Ivan, you need to reverse your thinking on hard money loans.
Basically those that use hard money loans are those that can not qualify for the easy money loans wheather those loans are easy to get (lower interest) or harder to get (higher interest). Because they can not qualify for the easy money loans they then turn to the "hard money loans" which means they are a riskier loan. Because the HML lenders are taking a greater risk than the easy money lenders they do require a greater return on their money.
It is not how easy or hard it is to get the money, but how hard it is to find the individuals and convince them to loan you the money that makes it a "hard money loan".
These type loans will always be towards the highest interest rates allowed. Since there is a lot of demand out there for such loans as they are the riskier loans.
Also a lot of HML's are like Hedge funds which the managers of are required to get the most in return for their group of investors. Therefore it will always be higher than the other ways that they could make their interest such as long term CD's and tax free high interest bonds, ect.
I hope that helps in understanding why the private sector loans are not tied to the normal thinking of the FEDS in interest as they are not "conventional" in their conception but PRIVATE and therefore only between lender and borrower until they break a law such as a usuary law.
Real Estate Attorney · Syracuse/New York, NY · Member since 2008 · 29 posts · 4 votes
17y
Basically, when the economy expands the Fed raises interest rates to control inflation. By doing that the Fed raises the cost of borrowing money, thereby reducing the money flowing in the economy.
Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
17y
Ivan, you need to reverse your thinking on hard money loans.
Basically those that use hard money loans are those that can not qualify for the easy money loans wheather those loans are easy to get (lower interest) or harder to get (higher interest). Because they can not qualify for the easy money loans they then turn to the "hard money loans" which means they are a riskier loan. Because the HML lenders are taking a greater risk than the easy money lenders they do require a greater return on their money.
It is not how easy or hard it is to get the money, but how hard it is to find the individuals and convince them to loan you the money that makes it a "hard money loan".
These type loans will always be towards the highest interest rates allowed. Since there is a lot of demand out there for such loans as they are the riskier loans.
Also a lot of HML's are like Hedge funds which the managers of are required to get the most in return for their group of investors. Therefore it will always be higher than the other ways that they could make their interest such as long term CD's and tax free high interest bonds, ect.
I hope that helps in understanding why the private sector loans are not tied to the normal thinking of the FEDS in interest as they are not "conventional" in their conception but PRIVATE and therefore only between lender and borrower until they break a law such as a usuary law.
Renton, WA · Member since 2009 · 127 posts · 15 votes
17y
I just figured as more money becomes available in the economy, there would be more people offering private loans, which would create the competition and drive down the cost of such loans.
Or am I disillusioned when I think every other person is a real estate investor or even knows what HML is?
Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
17y
Just because Obama is printing a bunch of more money and throwing it out into the economy that does not mean that it is worth anything!!!!!!!!!!
And since the value of that dollar is being devalued that means that you have to make even more money in the future to replace that which you loaned, thus the interest rate will be even higher.
Select a State · Member since 2009 · 156 posts · 17 votes
17y
This is just a simple supply and demand curve.
When the economy expands, the demand for money increases (more financing for projects etc.). Thus, the demand curve shifts causing the intersection of supply and demand to intersect at a higher price. The price is interest rate.
Select a State · Member since 2009 · 156 posts · 17 votes
17y
Originally posted by jawsette:
Just because Obama is printing a bunch of more money and throwing it out into the economy that does not mean that it is worth anything!!!!!!!!!!
And since the value of that dollar is being devalued that means that you have to make even more money in the future to replace that which you loaned, thus the interest rate will be even higher.
You should get compensated for this level of accurate reporting!!!
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
17y
There's another way to look at it.
Lets say inflation is 10% but interest rates were only 6%. Who would loan money? They would get a better return by investing in assets that are appreciating @10% rather than only earning 6% on their money. So people with money to lend always demand more than the inflation rate as a return on their money.