In most of the United States, there is no cap on hard money lending rates. That's why it is so important to shop around, if you want to get the best deal. The majority of private loans are made to real estate investors for construction, remodeling or improving existing houses, in order to resell them at a profit, rent them out, or simply refinance them at a later date. If you are looking for funding for one of those purposes, you will find that the best source is a private lender that specializes in rehab funding.
It is true that interest rates for hard money loans are typically higher than those charged by commercial banks, but there are other things to consider. Rehabbers generally deal with motivated sellers, people who need to close quickly. It takes 4-6 weeks to close on a conventional loan. Private lenders can close in two weeks or less.
Most financial institutions charge early repayment penalties. The cost of those penalties could be equivalent to more than the interest charged by a private company, especially since those who specialize in funding rehab projects often charge nothing for paying the loan off early.
Since it is a short term loan, typically running for 12 months or less, the annual interest rates for hard money are less important than say the APR for a 15 year mortgage. If you know what you are doing, it is not going to take you very long to repay this loan. If you are investing in rental property, you would take the hard money to close on the property quickly and then look for conventional financing, with a better long-term rate.
If you are rehabbing, you should be able to repair and resell the property within six months, but you have a year and your monthly payments are interest only. If you dealt with a bank because the interest was less than the hard money lending rates, your monthly payment could still be higher, because it would include principal and interest. Higher monthly payments restrict your cash flow and can limit your ability to make improvements or make additional purchases.
According to a recent article in the New York Times, the experts say that typical interest rates for hard money are at least 12%. But, that information can be misleading. Some lenders charge 10%, others charge 5% and of course, some charge more. You have to do some comparison shopping. Since, the "experts" say that they charge at least 12%, you might be tempted to sign up with the first provider that you find. You could be making a mistake.
Even between two providers that have the same hard money lending rates, the services that they offer could vary. The differences could mean less money in your pocket and less profits overall. If you take a little time and find the right provider, you will probably find that private funding is a good choice for your future rehab projects.