How Long Does It Take to Pay Off a Hard Money Loan?
There are several different ways to finance real estate, whether you use a traditional mortgage loan or a hard money loan. That said, regardless of which method you choose, it’s important to know how long it’ll take to repay your loan in full. Hard money loans depend on a few different factors. Today, we’ll review how long it takes to pay off a hard money loan, what impacts your repayment period, and how to pay it off efficiently.
Contents of This Article:
- How Long Does It Take to Pay Off a Hard Money Loan?
- 5 Factors That Affect How Long It Takes to Pay Off a Hard Money Loan
- Tips for Paying Off Your Loan Efficiently
- Find a Local Lender for Your Next Investment
How Long Does It Take to Pay Off a Hard Money Loan?
Hard money loans are short-term, non-conforming real estate loans. They differ from conventional loans in many ways, with different requirements, uses, and repayment terms. So, instead of a traditional mortgage loan, which you may repay over 15 to 30 years, you’ll typically repay a hard money loan within 3 to 36 months.
Short-term loans aren’t right for everyone, but they work great for specific investments. For instance, if you’re looking for a fix-and-flip project, Baltimore hard money lenders can help you reach your goals and sell the property for profit within a favorable amount of time.
Bridge financing is another way to use hard money. You can use hard money loans as a temporary solution while securing long-term financing. For instance, you can use a bridge loan to purchase a new property before selling an existing one. Then, once the property sells, you can repay the hard money loan.
Typical Repayment Periods for Hard Money Loans
The amount of time it takes to pay off a hard money loan may differ depending on your investment strategy. Here are a few examples of how long it may take for different scenarios.
- Fix-and-Flip Projects- Repayment generally happens once the property sells, usually within 6 to 12 months.
- Construction Loans– Terms can range from 12 to 24 months, depending on the scope of the project and how long it takes to complete.
- Bridge Loans- Generally repaid within 6 to 12 months once alternative financing is secured or an existing property sells.
5 Factors That Affect How Long It Takes to Pay Off a Hard Money Loan
Not all hard money loans are the same, and not every lender has the same repayment terms. Several factors can affect your loan repayment period, from the type of property you’re buying to your lender’s requirements.
- Lender Policies
- Investment Type
- Repayment Structure
- Exit Strategy
- Market Conditions
Lender Policies
While most hard money loans have short terms, the exact duration depends on your lender’s policies and your negotiated agreement. Generally, a hard money loan contract has room for negotiation and flexibility. For instance, some lenders offer flexibility with loan extensions, but they often come with additional fees or higher interest rates.
Investment Type
The property type or project you finance can also affect your repayment schedule. For instance, you’ll likely repay your loan for a fix-and-flip project once that property sells, which usually takes around 6 to 12 months in total. However, if you’re using hard money for a construction loan, the repayment period will align with the project’s completion and sale or refinancing.
Repayment Structure
Your repayment structure for your hard money loan can also impact how quickly you pay it off. Some lenders require only monthly interest payments, with the principal due at the end of the term. However, some lenders require monthly payments that include both interest and principal, which can shorten the repayment timeline.
Exit Strategy
Your exit strategy is one of the most important factors in repaying your loan on time. For instance, if you plan on selling the property after a renovation, you may need to extend your loan if it doesn’t sell immediately. On the other hand, if your goal is to refinance the property into a traditional loan, your ability to secure long-term financing can also influence the repayment period.
Market Conditions
Finally, real estate market conditions can affect the time it takes to pay off a hard money loan. For instance, in a slow market, selling or refinancing a property may take longer, which can delay full repayment. Rising interest rates can also make it more difficult to refinance, lengthening the repayment timeline.
Tips for Paying Off Your Loan Efficiently
Hard money loans differ from traditional mortgage loans because they’re typically much shorter. Instead of paying it off in a 15 to 30-year period, you’re usually repaying it within one to two years. That said, staying organized and ensuring timely payments is crucial. Here are some tips to help you stay on track.
- Stick to Your Project Timeline- Whether you’re taking on a fix-and-flip or new construction project, it’s important to create a detailed schedule–and stick to it.
- Budget for Unexpected Costs– Remember, anything can happen. You may run into unforeseen expenses like repairs or increased material costs. To avoid any delays or loan extensions, have a solid cushion.
- Prioritize Loan Payments- Paying on time is vital, so setting aside funds specifically for monthly payments can avoid late fees or penalties.
- Think About Refinancing– If your hard money loan term is coming to an end and you’re not done with your project, or your property hasn’t sold, consider looking into refinancing it.
- Communicate With Your Lender– Keeping an open line of communication with your lender can help avoid any missed payments. After all, they’ll likely be willing to work with you to adjust payment plans if necessary.
Find a Local Lender for Your Next Investment
Knowing how long it takes to pay off a hard money loan can help you decide how you want to fund your next investment. Most investors like the short-term nature of hard money loans, especially if they’re taking on a fix-and-flip project. However, it’s important to note that interest rates and other fees may be higher than they would for other loan types.
If you’re looking to work with a trusted hard money lender, look no further than Maryland Hard Money Lenders. Our team of experienced lending professionals can help you finance your property quickly and efficiently. Learn more about our lending process or fill out our initial loan application today!