What typically influences the interest rate on a hard money loan?

The interest rate on a hard money loan is primarily influenced by the type of property securing the loan. Hard money loans are typically secured by real estate and are often funded by private investors or companies that focus less on traditional credit assessments and more on the value of the property itself.

In the hard money lending space, the underlying asset is crucial; lenders analyze the property's market value, condition, and potential for appreciation to determine the risk associated with the loan. If a property has a high value and is in a desirable location, lenders may offer a lower interest rate because they have confidence in the collateral. Conversely, if the property poses more risk—such as being distressed or in a declining market—this may lead to a higher interest rate to compensate for the increased risk involved.

While the creditworthiness of the borrower can certainly play a role, in hard money lending, it is often secondary to the property’s value. Government subsidies are generally not a factor in hard money lending, as these loans are private and usually operate outside the traditional lending framework. Additionally, while the length of the loan term can influence borrowing costs, it is not as significant in setting the fundamental interest rate for hard money loans as the characteristics of the property itself.