The Real Cost of a Warehouse Line: Haircuts, Fees and Dwell Time

The real cost of a warehouse line is more than its interest rate. For a private lender, four things drive it: the haircut (your own cash in every loan), dwell time (how long each loan sits on the line accruing interest), curtailments (paydowns when loans age or slip), and fixed fees spread over the loans you actually fund. Because private loans are held for months, not sold in weeks, those four can matter more than the rate itself.

This guide models each one over the life of a loan. For the building blocks of warehouse pricing (index plus spread, the fee menu and an all-in cost formula) read warehouse funding costs explained first; this guide picks up where it leaves off. To run your own numbers as you read, open the warehouse line cost calculator.

Key takeaways

• The haircut is your capital, locked in each loan for as long as the loan is on the line. It caps how many loans your equity can carry.
• Dwell time turns a cheap rate into a meaningful cost: interest runs on every day a private loan sits on the line, and private loans sit for months.
• Aging limits and curtailments can force cash paydowns exactly when a borrower asks for an extension.
• Fixed fees (upfront, non-usage, audit, legal, custody) cost more per loan when you use the line less.
• Compare options on what you keep per loan and per dollar of your own capital, not on the headline rate.

Why do private lenders feel warehouse costs more than mortgage bankers?

Warehouse lines were built for mortgage companies that close a loan and sell it within weeks. The Federal Reserve's research describes lines where loans are pledged briefly before sale, with haircuts, mark-to-market margin calls and 364-day terms (Federal Reserve Board, 2018). A short dwell means interest is a small cost and the haircut comes back quickly.

Private lenders often hold bridge, fix-and-flip and construction loans until the borrower repays. That changes the economics: interest accrues for months, the haircut stays locked, and the loan may outlive the line's aging limit. The same line costs a hold-to-maturity lender far more than a mortgage banker.

Cost 1: The haircut

What it is

A line advances a percentage of each loan, the advance rate. The rest, the haircut, comes from your own capital.

What it really costs

The haircut isn't charged as a fee, so it is easy to leave out. But it is equity that could fund other loans or earn a return elsewhere. Two ways to count it:

1. Opportunity cost. Multiply the haircut by the return you could earn on that capital and by the time it is locked up.
2. Capacity. Divide your available capital by the haircut per loan to see how many loans you can carry at once.

Hypothetical, round numbers. $1,000,000 of available capital, $500,000 loans:

Advance rate	Haircut per loan	Loans you can carry at once
90%	$50,000	20
80%	$100,000	10
75%	$125,000	8
70%	$150,000	6

Advance rates on private loans are set by each provider and can be well below what lines advance on agency mortgages, so check your term sheet. Remember too that liquidity covenants require cash you can't put into haircuts at all. See warehouse line requirements for private lenders.

Cost 2: Dwell time

What it is

Dwell time is how long a loan stays pledged. Interest on the advance accrues every day.

What it really costs

Hypothetical. A $500,000 loan, 75% advance ($375,000 drawn), 9% line rate, simple interest on an actual/365 basis:

Days on the line	Line interest
30	about $2,800
90	about $8,300
180	about $16,600
270	about $25,000
365	about $33,800

A mortgage banker selling in 30 days pays the first row. A bridge lender holding to maturity pays one of the last three. Meanwhile, the borrower's interest is paid to you, so what matters is the margin between your note rate and the line rate on the advanced amount, over the full holding period.

Aging limits

Lines limit how long a loan can stay on, and terms vary. One published bank program sets "maximum dwell time negotiated at the time of approval" (Simmons Bank). Past the limit, typical consequences include a lower advance rate, a required paydown, or removing the loan from the line entirely. For a 12-month loan on a line with a 180-day limit, the second half of the loan needs a different funding plan.

Cost 3: Curtailments and margin calls

What they are

A curtailment is a required paydown of the advance. Agreements can require one when:

• a loan ages past a threshold;
• a loan becomes delinquent or otherwise ineligible;
• the collateral is revalued lower (a margin call);
• a concentration or sublimit is exceeded.

The Federal Reserve paper describes margin calls as a standard feature of warehouse lines, triggered when the value of pledged collateral falls.

Why they hurt

Curtailments demand cash at the worst moments. A borrower who needs a 90-day extension is, by definition, late on the exit. If the loan crosses the line's aging limit at the same time, you may have to pay down the advance in cash while the loan isn't paying off. Model a "bad quarter" in which a few loans extend, and check you could meet the resulting curtailments without breaking your liquidity covenant.

Cost 4: Fixed fees and utilization

What they are

Many lines charge some combination of upfront or commitment fees, non-usage fees on the unused amount, legal costs at setup and renewal, audits or field exams, custody fees and per-file fees. One published bank program, for example, notes "a per-file transaction fee applies to each loan funded on the line."

How utilization changes the cost per loan

Fixed costs are paid whether or not you use the line, so the fewer loans you fund, the more each one carries.

Hypothetical. $20,000 a year of fixed costs (fees, audits, legal):

Loans funded on the line in a year	Fixed cost per loan
40	$500
20	$1,000
10	$2,000
5	$4,000

Non-usage fees work the same way: the less you draw, the more you pay for capacity you don't use. Lenders with uneven deal flow feel this most.

Putting it together: one loan, all four costs

Hypothetical, round numbers. A $500,000, 12-month bridge loan at an 11% note rate with 2 points, on a line with a 75% advance, a 9% rate, a $750 per-file fee, 0.25% of the advance in draw fees and $1,000 of allocated fixed costs. The line's dwell limit is 180 days, after which the advance must be paid down to 50%.

	Amount
Your cash at closing (haircut)	$125,000
Extra cash at day 180 (curtailment to 50%)	$125,000 more, $250,000 in total
Line interest, days 1 to 180 on $375,000	about $16,600
Line interest, days 181 to 365 on $250,000	about $11,400
Per-file, draw and allocated fixed costs	about $2,700
Borrower interest you collect (12 months)	$55,000
Points	$10,000
What you keep, before your own costs	about $34,300

The line leaves about $34,300 with you, but needs $125,000 of your cash for six months and $250,000 for the next six, all while you carry the credit risk. If the borrower extends, the dwell and curtailment terms apply again.

Compare that with table funding, where a capital partner funds the whole loan at closing. At a 9.5% partner rate and Lender Capital's standard 1.00% placement fee ($5,000 on this loan), you would keep $5,000 of points and a 1.5% spread (about $7,500 over 12 months), around $12,500 in total, with no cash in the loan, which the capital partner owns. Less per loan; no capital per loan. Which is better depends on what else your capital could do. See table funding vs. a warehouse line.

How to compare a line with the alternatives

1. Model each loan type you make with its real holding period, not the line's minimum.
2. Include the haircut and liquidity as capital used, and assign it a cost.
3. Include aging terms and curtailments for loans that extend.
4. Spread fixed costs over a realistic number of loans, not the maximum.
5. Compare per loan and per dollar of your capital. A line may earn more per loan; placement may earn more per dollar of equity, because it uses none.
6. Price the risk. On a line you keep the credit risk and a personal guarantee; on a placed loan the owner holds the risk.

Five ways to lower the real cost of a line

If a line is the right tool for some of your loans, these levers usually matter more than shaving the rate:

1. Negotiate the advance rate by loan type. A few points of advance on your most common loan frees more capital than a small rate cut. Ask whether the advance can rise as your track record grows.
2. Match the dwell limit to your real holding period. A limit shorter than your typical loan term guarantees curtailments. Negotiate the aging schedule before you sign, and ask how extensions are treated.
3. Size the line to your actual pipeline. A line much larger than you use pays non-usage fees on empty capacity. A smaller committed line with an accordion option can cost less.
4. Keep the line for loans that fit it best. Put loans on the line that sit inside its eligibility box and that you expect to pay off within the dwell limit. Send the rest elsewhere, so they don't drag on the line's advance or concentration limits.
5. Plan your liquidity cushion. Hold enough cash to meet a bad quarter's curtailments without breaching the liquidity covenant. A breach can cost far more than the cushion.

Each of these is easier to negotiate when you can show a provider clean data on how your loans perform. The warehouse line requirements guide lists what providers ask for.

Frequently asked questions

What is the biggest hidden cost of a warehouse line?

For private lenders, usually the haircut combined with dwell time: your own cash is locked in every loan for as long as the loan sits on the line, and private loans are held for months.

How does dwell time affect warehouse line cost?

Interest on the advance accrues every day a loan is on the line, and many lines step down the advance or require a paydown once a loan passes the aging limit. Longer holds mean more interest and more cash tied up.

How do I calculate my warehouse line cost per loan?

Add the line interest over the realistic holding period, per-loan fees, a share of fixed annual costs based on the loans you actually fund, and a cost for the haircut capital. The warehouse line cost calculator does the per-loan part for you.

How Lender Capital fits

Lender Capital places first-lien, business-purpose loans with capital partners who fund the whole loan at closing, so there is no haircut, no dwell time, no curtailment and no fixed facility cost on placed loans. You apply once, submit each loan with the full file, and we send it only to capital partners whose criteria it fits. You keep your points (less the placement fee), earn the spread above the partner's rate, keep the borrower and service the loan, and pay a placement fee only when a loan funds.

Compare every option on the warehouse line alternative page, see table funding with Lender Capital, or apply as a lender.

Sources

• Kim, Laufer, Pence, Stanton and Wallace, Liquidity Crises in the Mortgage Market, Federal Reserve Board FEDS 2018-016
• Simmons Bank, Warehouse Lending, an example bank program's dwell-time and fee terms
• Office of the Comptroller of the Currency, Comptroller's Handbook: Mortgage Banking