Hard Money Second Mortgages - Pricing, Closing Costs, Terms, and Interest Rates — 2024

If you’re trying to estimate the costs for a hard money second mortgage, we've got you covered with this blog post on pricing, closing costs, terms and interest rates for private second trust deeds in 2023. A caveat: the loan terms and pricing will not be exact. Instead, the terms will encompass the range I’m seeing hard money second mortgage pricing at halfway through 2023. 

The reason the terms are not exact — like four points cost at 12.00% interest — is that my company, First Capital Trust Deeds (FCTD), is a mortgage broker and not the lender or money source. FCTD works with around two dozen lenders, ranging from individual trust deed investors, family offices, and mortgage debt funds, which fund second mortgages for our real estate investor clients. Each of the private lenders have an ideal price point, which could be an annual yield of 13.00%, split between upfront points and the interest rate (2 points at 11.00% or 0 points at 13.00%). 

Also, each hard money second mortgage loan scenario is unique. Some loans are relatively simple, like a $1.4 million hard money second trust deed behind a $5 million first mortgage, secured by an $11 million home in Newport Coast. Or, they can be complex, like a recently closed $3.2 million second mortgage secured by four SFRs in Los Angeles and Ventura counties, where FCTD worked through multiple trusts and LLCs to put the loan together.

Typically, the simpler the loan, the lower the costs. More complex loans will often have higher closing costs and sometimes, a higher interest rate.  

Let’s take a look at the fee structure and terms of hard money second mortgages so you can get a good idea of what to expect going into a hard money second trust deed. 

***Please note: the terms and fees I cover below are based on business purpose hard money second mortgages and not consumer purpose loans. FCTD focuses on business purpose loans for real estate investors rather than consumer purpose loans, like debt consolidation or home improvement loans on a primary residence.***

Interest Rates

The interest rates we’re seeing on private second mortgages in 2023 range from 11.00% to 15.00%. 

Upfront Points (1 point = 1% of loan amount)

Loan origination points range from 3 points on the low end, to 6 points on the high end. Usually, smaller loan amounts have a higher percentage of points. For example, a $200,000 second mortgage may have a cost of 5 points ($10,000). Whereas a larger loan, like a $1.4 million loan, may only have 3 points ($42,000). 

Closing Costs

Lenders and mortgage brokers may have additional closing cost charges, including a loan doc prep fee ($595 to $3,595), lender wire fee ($45), loan servicing setup fee ($65) and more. There are also standard title, escrow and recording fees that will be included on the closing statement.  

Loan Term (months)

Most hard money second mortgages are written for 12-24 months. Occasionally, FCTD has provided a 36 or 60-month loan. But those circumstances are rare, since most private lenders like to get their money back within a year or two. 

This blog should give you a good overall idea of where lenders and brokers are currently pricing hard money second mortgages. Hard money second mortgage pricing, closing costs, terms and interest rates will of course vary depending on the specific borrowing details. Relatively simple loans will have lower pricing. Other loans with a lot of moving parts, like the four-property second trust deed FCTD recently originated, may be higher.