Is there pre payment penalties on a hard money loan?

Many private equity lenders will not have the flexibility to meet your needs, or if a broker your clients needs. A good private equity lender will not try to fit all borrowers into the same matrix and allow for customization to the borrower’s needs. Because of this, some of the programs have pre-payment penalties and some do not. However, one option is to buy-out the prepayment penalty.

Why would anyone pay such high fees and rates for a hard money loan?

There are many reasons why a borrower would choose to use private money (hard money) over a cheaper institutional option, but typically either the borrower or property doesn’t meet conforming lender guidelines. For example, professional real estate investors like to use private money when buying because they are able to make offers which are not constrained by long timelines and numerous rigid conditions found with most lenders. Often times speed is a very significant factor in completing a profitable transaction and in those cases it often makes sense to pay for a short-term private money option rather than lose the deal. Frequently the condition of a property won't allow for initial financing with conventional money and in those cases private money may be used. Often, the type of property is a factor. Banks don't like lending on raw land and lots, but private money lenders are more inclined to do so. Cash leverage is another factor.
The structure of the deal may be a factor. Most private money lenders allow the buyer to establish their equity through the mechanism of a seller carry back; banks won't do this. The list goes on and on for reasons and benefits in using private equity.