Hard money and bridge loans: expensive on purpose, and sometimes correct

A hard money or bridge loan is secured by the property, underwritten mostly on the asset, and priced for speed and risk. Terms are short — often measured in months — with interest-only payments, points at origination and a balloon at the end. The situations where it fits share a feature: a defined exit within the term. A property that cannot be financed conventionally until it is repaired. A purchase that has to close faster than an agency loan can move. A seller who needs to buy before selling. An auction with a hard funding deadline. The situations where it goes wrong share a different feature: an exit that depends on something outside the borrower's control. A refinance that assumes an after-repair value nobody has underwritten. A sale into a market that has slowed. A renovation timeline with no contingency. When the term ends without the exit, the options are an extension at a cost, a default, or a distressed sale. Read three things before signing. The true annual cost, including points and fees, not just the rate. Whether interest is charged on the full commitment or only on funds drawn, which matters a great deal on a construction draw schedule. And the extension terms — what it costs, and whether it is at the lender's discretion. Lenders in this space vary enormously in how they behave when a project runs late. The reference worth getting is not from a borrower whose deal went well. It is from one whose deal went long. This article is general information, not legal, tax or financial advice. Rules change and every deal is different — check your own case with a licensed professional. Alberto Zaltzberg — Adonait · adonait.com