Dutch vs non-Dutch interest on a hard money loan: what the undrawn rehab money costs

The short answer

Most hard money and fix and flip loans are split into two pieces: money advanced at closing to buy the house, and a rehab holdback the lender releases in draws as the work gets done. Dutch interest charges the rate on the whole loan, holdback included, from the day the loan closes. Non-Dutch interest charges the rate only on the money you have actually drawn.

At the same rate, non-Dutch interest never costs more. How much it saves depends on three things: how big the holdback is compared with the loan, how slowly it is drawn, and how long you keep the loan. On a quick cosmetic job the gap can be small enough that a slightly lower Dutch rate wins. On a long, heavy rehab it can be thousands of dollars.

Non-Dutch interest is also called as-disbursed interest or, in some markets, New York interest. Dutch interest is sometimes called full-boat interest. The names vary, so read how the interest is calculated rather than relying on the label.

Formula

Dutch interest = total loan × annual rate ÷ 12 × months the loan is open. The monthly interest is the same every month.

Non-Dutch interest = annual rate ÷ 12 × the sum of each month's drawn balance. The monthly interest starts lower and rises with each draw until the holdback is fully drawn.

Break-even Dutch rate = non-Dutch rate × (average drawn balance ÷ total loan). The average drawn balance is the sum of the monthly balances divided by the number of months. If a lender offers a Dutch rate below this number, Dutch is cheaper on your schedule.

These formulas use simple monthly interest and assume each draw lands on the first day of a month. Real loans usually accrue daily and pay interest in arrears, so the lender's payoff letter will differ by a few dollars, but the comparison holds.

Example

Illustrative example. These are made-up numbers to show the math, not a quote, a rate offer, or a market average. A $300,000 hard money loan at 11% interest, picked for the example, is split into $220,000 advanced at closing and an $80,000 rehab holdback. The holdback is released in four $20,000 draws at the start of months 2, 3, 4, and 5. The house sells and the loan is repaid at the end of month 8.

Dutch interest. The lender charges 11% on the full $300,000 every month: $2,750 a month for 8 months, or $22,000.

Non-Dutch interest. Month 1 is charged on $220,000, about $2,017. Month 2 is charged on $240,000, $2,200. Month 3 is charged on $260,000, about $2,383. Month 4 is charged on $280,000, about $2,567. Months 5 through 8 are charged on the full $300,000, $2,750 each, or $11,000. The total is about $20,167.

The gap. Non-Dutch saves about $1,833 on this schedule. The sum of the monthly balances is $2,200,000, so the average drawn balance is $275,000, or about 92% of the loan. The break-even Dutch rate is 11% × 275,000 ÷ 300,000, about 10.08%. A Dutch quote has to be roughly 0.92 points lower to tie.

Same loan, slower rehab

Illustrative example. Keep the same $300,000 loan at 11%, but now the contractor runs behind. The four $20,000 draws land at the start of months 3, 5, 7, and 9, and the house does not sell until the end of month 12.

Dutch interest is $2,750 a month for 12 months, or $33,000. Non-Dutch interest is charged on $220,000 for two months, $240,000 for two months, $260,000 for two months, $280,000 for two months, and $300,000 for four months. Those balances add up to $3,200,000, so the interest is about $29,333.

The gap doubles, to about $3,667. The average drawn balance falls to about $266,667, so the break-even Dutch rate falls to about 9.78%. Slow draws and a long hold are exactly when the method matters most, and they are also when a flip's margin is already under pressure.

When a lower Dutch rate wins

Illustrative example. Now the job is fast. The whole $80,000 holdback is drawn at the start of month 2 and the loan is repaid at the end of month 6. The drawn balances add up to $1,720,000, so non-Dutch interest at 11% is about $15,767, and Dutch interest at 11% is $16,500.

Suppose a second lender offers the same loan with Dutch interest at 10.5%. That costs $300,000 × 10.5% ÷ 12 × 6, or $15,750, about $17 less than the non-Dutch loan at 11%. On the slow schedule above, the same 10.5% Dutch loan would cost $31,500, about $2,167 more than non-Dutch at 11%.

So the right answer depends on your schedule, not on the label. Price both methods on the draw schedule you actually expect, and on a slower one in case the job runs long.

Why some lenders charge Dutch interest

Lenders that use Dutch interest often describe the holdback as money set aside for your project from day one, sometimes held in escrow, so it cannot be lent to anyone else. Some say Dutch loans can come with faster draw releases or a lower rate. Lenders that use non-Dutch interest point out that you only pay for money you are using.

Those are trade-offs to weigh, not rules. Ask each lender how fast a draw is released after an inspection, whether the holdback is escrowed or funded from the lender's own capital at the time of the draw, and whether the quoted rate changes if you ask for the other method.

How to spot it on the term sheet

Look for the base the rate is charged on. Phrases such as interest on the full loan amount, on the total commitment, or on the face amount of the note point to Dutch interest. Phrases such as interest on the outstanding principal balance or on disbursed funds point to non-Dutch. If the term sheet does not say, ask for the answer in writing before you sign.

Do not expect a standard disclosure to total it for you. When a flip loan is made to an LLC or primarily for a business purpose, the federal Truth in Lending rules in Regulation Z, which require the consumer mortgage disclosures, generally do not apply, because they exempt credit extended to a company or primarily for a business purpose. The note and the term sheet are where the math lives.

Other lines that change the interest you pay

Points. Points are a separate fee, usually a percent of the loan. Check whether they are figured on the full loan, holdback included. In the example, 2 points on the full $300,000 would be $6,000 under either interest method.

Minimum interest. Some loans charge a minimum number of months of interest even if you repay early. Ask whether the minimum is figured on the full loan or on the drawn balance.

Day count. Some notes accrue interest daily at the annual rate divided by 360 and charge it for every actual day. Over a full 365-day year that is 365 ÷ 360 of the quoted rate, about 1.4% more interest. On $300,000 at 11%, that is about $33,458 instead of $33,000.

Extensions and interest reserves. Extension fees and any interest reserve held back from the loan add to the cost and to the balance the rate is charged on. Put them in your holding costs, not just the headline rate.

Common pitfalls

Comparing the rate and ignoring the base. An 11% non-Dutch loan and an 11% Dutch loan are different prices, and a lower Dutch rate is not automatically cheaper.

Using the best-case draw schedule. Draws that slip a month or two cost more under non-Dutch than you planned, and Dutch loans keep charging the full balance the whole time. Price a late schedule too.

Counting only monthly interest. Points, minimum interest, extension fees, and the day count can move the total more than the interest method does.

Leaving the holdback in your cash plan. Under either method the holdback is usually paid after work is done and inspected, so you front the contractor until each draw is released.

Assuming the lender uses the same method on every product. Ask about the specific loan on the specific term sheet in front of you.

Run your own numbers

The hard money calculator charges interest on the full loan amount for every month, which is the Dutch figure. For a non-Dutch quote, type your average drawn balance as the loan amount with the same rate and months; in the first example, $275,000 at 11% for 8 months gives the same interest as the month-by-month math. Price points on the full loan separately. Then carry the total into the fix and flip calculator and your holding costs to see what the method does to profit.

These pages run the math on numbers you enter. They do not set loan terms, and nothing here is a loan offer, legal advice, or financial advice. Lenders' terms vary and change, so confirm how your loan charges interest with the lender and read the note before you close.

Sources

Consumer Financial Protection Bureau, Regulation Z, 12 CFR 1026.3, Exempt transactions, and Official Interpretation 3(a) (accessed November 5, 2026), https://www.consumerfinance.gov/rules-policy/regulations/1026/3/ and https://www.consumerfinance.gov/rules-policy/regulations/1026/interp-3/. Regulation Z does not apply to credit extended primarily for a business, commercial, or agricultural purpose, or to credit extended to other than a natural person; credit to acquire, improve, or maintain non-owner-occupied rental property is deemed business purpose.

Ridge Street Capital, Non-Dutch vs. Dutch Interest Explained (accessed November 5, 2026), https://www.ridgestreetcap.com/blog/non-dutch-interest. A lender's explainer: non-Dutch interest is charged only on drawn funds and is also called as-disbursed or New York interest; Dutch interest is charged on the full approved amount and is also called full-boat interest.

Private Money Lending (PML), Dutch vs Non-Dutch Interest in Hard Money Loans (accessed November 5, 2026), https://www.privatemoni.com/learning-center/dutch-vs-non-dutch-interest. A lender's explainer of the same definitions and of when a lower Dutch rate can beat a non-Dutch rate on a fast draw schedule.

The two lender explainers are cited for terminology only. RE Underwrite Lab is not affiliated with either lender, and every dollar figure on this page is our own illustrative math.

Steps

1. Find the interest clause

   Read the term sheet and the note for the base the rate is charged on. Wording like the full loan amount or the face amount of the note means Dutch interest. Wording like outstanding principal or funds disbursed means non-Dutch.

2. Split the loan into two pieces

   Write down the amount advanced at closing and the rehab holdback that will be released in draws. Both add up to the total loan.

3. Lay out a realistic draw schedule

   Put each draw in the month you expect the lender to release it, then the month you expect to repay the loan. Use the contractor's schedule, not the best case.

4. Price both methods

   Dutch interest is the full loan times the rate divided by 12, times the months. Non-Dutch interest is the rate divided by 12, times the sum of each month's drawn balance.

5. Find the break-even rate

   Multiply the non-Dutch rate by your average drawn balance divided by the full loan. A Dutch quote below that rate is cheaper on your schedule; above it, non-Dutch wins.

6. Carry the winner into the deal

   Use the total interest, not the rate, in your holding costs and flip profit. Re-run it if the rehab or the sale runs long.

Questions