Interest rates in the U.S. have remained stubbornly high for the last several years. So much so that for the first time since 2016, home ownership in America declined during the second quarter of 2025. The number one factor preventing people from purchasing is high interest rates.
What is not good for residential homebuyers is ultimately good for hard money lenders. The hard-money industry tends to do better when interest rates are high. If this sounds counterproductive to you, you’re not alone. A lack of understanding about how hard money works makes it difficult for consumers to wrap their brains around how it is impacted by interest rates.
Already Charging Higher Rates
What confuses so many people is the fact that hard money lenders already charge rates a couple of percentage points higher than traditional lenders. That would seem to drive business away. But here is what you need to know: the same rates that impact residential home buyers also affect the two biggest users of hard money: real estate investors and businesses.
Sticking with the real estate investor as the primary example, this is a person who is looking at real estate to generate regular income. Whether an investor is building a rental portfolio or specializes in fix-and-flip properties, he is not looking at a 30-year mortgage that would be undoable with a high interest rate. He is looking for a short-term loan that helps him get in and out quickly.
The Problem With Higher Rates
The problem with higher rates in a traditional lending scenario is that they make it even harder for someone right on the edge of qualifying to get a conventional loan. Traditional lenders have historically been nervous about funding real estate transactions for investors. Even under the best of circumstances, getting a conventional loan to acquire an investment property is difficult. Higher interest rates only make things harder.
A real estate investor generally doesn’t want to deal with banks because approval requires jumping through too many hoops. Approval is also slow, which is a problem in the real estate market. Investors need to be able to move quickly in order to capitalize on the best deals.
Why Hard Money Is Attractive
Hard money is attractive to investors for two reasons. First, it is fast. Take the case of Actium Lending based in Salt Lake City, Utah. Although two to three days is normal for Actium to approve and fund, they can do it in one business day if necessary. Try getting one-day approval and funding from a bank. It is not going to happen.
Hard-money lenders also have less stringent lending requirements. Their approval decisions are made based primarily on the value of the asset an investor is attempting to acquire. Hard money lenders don’t look at cash flow, income, credit history, etc. Therefore, hard money loans are easier to qualify for.
Short Terms Mean Something
Let us finish up by quickly looking at hard money rates and terms. We know hard money loans come with interest rates that can be several percentage points higher. But the terms on most hard money loans do not exceed 24 months. Terms of 6-12 months make lenders very happy. Why does this matter?
Because paying 10% over a 12-month term still results in less total interest paid than a rate of 7% over 20-30 years. Despite higher rates, investors still spend less on total interest.
Here is the bottom line: higher interest rates make traditional loans harder to get among investors and businesses. So they turn to hard money. Hard-money lenders benefit as a result.