Will hard money interest rates change?

Question

Do you think there will be a shift in hard money and other investment loan interest rates on average as conventional mortgage rates continue to rise? Im in the Atlanta market and from what I see hard money interest rates are on average around 8-13%. With conventional rates around 5% and projected to increase more this year, will this have an effect on the interest rates for hard money loans? Would love to hear some opinions on why or why not. Thanks in advance!

Jay Hinrichs · Answer

rates in CA are basically the lowest in the country.. as you go east the rates rise and 12% is pretty common and higher keep in mind if your loaning in NJ  NY  other mortgage and LOOOONG foreclosure time lines you need higher rates to level out the loss's you take when one goes bad.

Jay Hinrichs · Answer

Generally no wont change it HML rates are based more on what the competition is doing and there is no correlation basically to  conventional loan rates..  lower rates the 8% go to the absolute best clients and most seasoned and active  the higher rates go to newbies and maybe not as good of credit score or higher LTVs ( max LTV) compared to someone else who maybe does not need max LTV and will put more money into the deal..  for HML rates have been coming down for years based on the competition from Hedge funds providing massive credit lines for HML ers .

More you have to loan the cheaper your rates can be..  When I started in the mid 80s it was 5 points 15% and that held for quite a long time.. now you see the rates were they are at basically lenders need 10 to 15% apr  (  including points and the note rate) to stay in business ..  the lending facilities to the HML have probably gone up a tick.. but my commercial loan rates we pay have not moved yet .. we are still at 5% .. and I am sure the HML with large bank credit facilities for HML are at about the same rate so they make it on the delta.

then you have the mom and pop lenders like us who only use private money and our methods are a little different but pricing can be higher because of flexibility and frankly we dont have massive amounts of cash to loan we we need higher rates to be profitable.

Matthew Crivelli · Answer

Short Term bridge loans have been very steady. The floor rates have moved up some, a few months ago I could do a bridge loan at 7% for top tier experience. This number has moved closer to 8% but overall very steady.  Hedge funds still feel Residential Transition Loans (bridge) are a safe bet. The DSCR 30Y Loans  have seen a lot more changes as they are tied to the bond markets. (10Y Treasury Yield) @Meredith Von Kleydorff

Ricardo S. · Answer

I just closed on a Bridge Loan today on a property in Decatur GA and my rate was 9.25% borrowing around 300k all in.

The lowest rate I’ve gotten is 9% but its based on alot of factors that are independent of mortgage rates.

Jay Hinrichs · Answer

yes like the first few months out of the pandemic when the big HML shops stopped lending altogether B/C their lines froze  it happens.

Patrick Prunty · Answer

@Meredith Von Kleydorff

Are folks still able to get away with charge +12%?  Sounds nuts considering the rampant fee and rate compression in the market today.  Perhaps that higher rate market exists for first time/inexperienced borrowers.

Anyway, for now, it is my opinion that hard money rates, at least short-term rates, will stay put in the face of rising government rates. There is so much capital in the market today, stiff competition for experienced borrowers and starvation for a non-volatile, non-correlated yield.  Hard money used to be a super local, more mom and pop shop type of industry, however, with advances and technology and institutional capital seeking to partake in this space, the industry has changed.  Think Civic...now owned by a bank...when it comes purely to rate, their cost of capital is super low and thus no one can compete.

Until government rates push into the 7-8% range, I suspect your short-term 8-12% rates for fix/flip and similar type programs will stay put.  On other hand, those long-term, DSCR loans have already increased or you are seeing those previously fixed rates now change to adjustable rates to protect against interest rate risk.

Will be great to see what others think on this subject!

Sam Yin · Answer

@Jay Hinrichs

I have to agree. After shopping recently and pricing out some creative debt between CA, midwest and east coast, it appears CA has some of the lowest interest rates. Currently, it easy to get around 4% for DSCR loans, 30yr amortized... may be less depending on your experience and relationship with the lender. My most recent bridge loan quote (last week) was 5.5 - 6%. Likewise, HML here are roughly 8%. Same properties, using OOS lenders are a few percent more across the board.

However, the devil is in the details. For fixed commercial loans at those rates, they want 1.2 or better on DSCR.  I have found that there are OOS lenders that offer loans for a DSCR of 1, but their rates are +1%- higher.

It all depends on what you need, how fast you need it. My limited experience tells me there is little change in the commercial loan market. Last summer, my rates were 3.3 to 3.7. Last month I got 3.9. As of today, everywhere is shop is around 4.1 to 4.3... in CA.

In a pinch, with the right deal, HML  at higher rates can make very good sense.

Stephanie P. · Answer

@Patrick Prunty

I'm not seeing anyone go to ARM's (other than Civic on their no seasoning product).  Companies like Finance of America, Deephaven and HomeXpress don't even offer ARMs that I'm aware of. The big change in the DSCR world has been to push interest only for the first 10 years and then go to a 30 year fixed afterward, significantly raising the yield for the lender and increasing the investor's cashflow.  I do agree, however, that short term rates will hold.

H. Jack Miller · Answer

As long as there is a lot of capital in the markets the rates should not change. But that could change very quickly. at @Geltfinancial we have lowered rates, because we have a big appetite, but you never know things can happen very fast.

Will hard money interest rates change?

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