I was recently approvedfor a HML with two options. One with 13.88% and 4 origination points, the other 18% interest and no origination poits. What’s the difference? My other question is, say for an example I take out a loan for $70,000 (that’s 65% ARV including repairs) what would be my payments if it’s interest only? I don’t have great credit, but not bad either. Are these good terms? Thanks again for all your help!
The main difference is that you don’t have to eat up your equity with points(origination) you just have a higher interest rate.
how you figure interest only payments is very simple
say you have a 70k loan with 15% interest
70000 x .15 / 12 = payment
which is $875
Figure the different costs over different hold terms and see which works best for you. I believe the 18% interest will be better for short term. Lets do 6 months to see which is better
$70,000 over 6 months at 13.88% = $4858 interest plus 4 points for a total of $7658
$70,000 over 6 months at 18% = $6300
Over the next few months there will be a break even point where the costs will be the same and after that the 18% will start being the more expensive.
Both are good deals only if you can sell the property within 6 to 8 months especially if it is vacant. The interest will eat up all your profits and but fast. I am concentrating on rental units where the interest is covered by tenants rent payments. I am finishing up two houses for sale as well and have drug both out way too long.
When you figure the interest only payments is over 6mos. like in your description or is it spread over 12 mos. like in richmortgagebroker’s? I guess I was thinking interest only would be pretty cheap, but you still have to have a good amount of money in reserves to do a rehab with a HML. Apartments would seem the obvious way for someone with low cash reserves to pick up a property. Thanks both of you for your response.
I have to find a way to pickup a property with little or no money down and low to no payments until selling time, but I guess everyone would be investors if it were that easy!
The interest that tedjr figured is for 6 months on each loan. If you had each loan for 1 year, then the interest would be about the same on them (18% versus 17.88%), but if you have the loan for less than a year, the higher interest rate will actually be cheaper because the on the loan with the points, they are charged up front as fees before you start paying the monthy interest. If you kept the loan for longer than 1 year, then the loan with the points would become cheaper than the higher interest rate because you are paying a lower monthly interest (the rate is 4.12% less).
I don’t feel that I explained this very well, but I hoped it helped.
No, you explained it well wilson. I thank you for your response. Do you take out hard money? And if so do you pay the monthly out of reserves or some other way? Thanks again.
If you bought the home at a low enough LTV say at 65%LTV and your HML alow you to go to say 70-80% then you may roll your costs into the loan thus take out your mortgage payments in advance and pay with the equity when you need to so the less you use the more profit.
Hope this helps as an idea