Glossary
Dutch interest
Dutch interest means the lender charges interest on the full loan amount from day one, including rehab funds you have not drawn yet. Non-Dutch lenders charge interest only on the money actually drawn.
Two hard money quotes at the same rate can cost different amounts because of this one term. Ask every lender which way they charge.
How it works
With a rehab holdback, part of the loan sits with the lender until you request draws. Dutch interest bills on that undrawn money too. Non-Dutch interest starts on each draw only when it is paid out.
- Dutch: $221,000 x 11% / 12 x 6 months
- $12,155
- Non-Dutch draw schedule
- $171,000 at closing, then four $12,500 draws at the end of months 1 to 4
- Drawn balances, months 1 to 6
- $171,000, $183,500, $196,000, $208,500, $221,000, $221,000
- Non-Dutch: $1,201,000 of balance-months x 11% / 12
- $11,009
The gap grows with a bigger rehab and a slower draw schedule. A gut rehab with $120,000 held back can cost several thousand dollars more under Dutch interest.
What to watch
- Loan terms do not always say "Dutch." Look for interest on the "total loan amount" or "full commitment."
- A Dutch lender with a lower rate can still be cheaper. Compare total carry costs.
- Run The Deal defaults to interest on drawn funds and shows the Dutch case as its own line in sensitivity.
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