Walnut Street Finance Blog

How Does the Increase in Federal Interest Rates Affect Hard Money Loans?

Posted by Walnut Street Finance Team on Jan 22, 2019 11:00:00 AM

According to a BizJournals article, “borrowing costs will continue to trend upwards in 2019 as the economy slows and the Federal Reserve raises interest rates accordingly…” so how do rising interest rates impact the hard money market?

The short answer -  they don’t. Hard money lenders obtain financing from private investors, therefore each lender dictates the terms of loan rates.

In general, hard money loans have higher interest rates than conventional loans - but that’s not necessarily a negative thing.

Hard money lenders will tailor a loan agreement that is mutually beneficial for both borrower and lender by evaluating the risk and potential value of the property. While traditional banks have strict requirements about the type and condition of the properties it will lend on, hard money lenders should be experts when it comes to lending on distressed properties, therefore know the likelihood of profitability of the property and are likely to close on the deal much more quickly with much more flexibility.

This flexibility also helps separate hard money loans from the performance of the economy or rise of federal interest rates.

However, it is not to say the increase in in federal interest rates won’t have any effect - it can increase competition amongst hard money lenders which can in turn affect your borrowing rate.

But as long as your investment property has been evaluated as low-risk with potential value - speed, flexibility and the short-term nature of a hard money loan typically outweighs the higher rates.

These advantages can make or break a deal in the fast-paced world of real estate investing.

Download our free eBook on debunking the low rate myth today to learn why lower interest rates don't always add up to higher returns. Click image below to get your free copy!

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Topics: Real Estate Investing Tips

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