How does this work??

General Real Estate Investing
1

Ok, this may seem like a dumb question, but for some reason I can’t get it…

Ok, I have been looking into Hard Money Loans and am confused on how this works…so here aare the questions…

  1. If I get a hard loan for 65k, with 4 points, and 14% interest, what would the payoff be?

Like If I pay interest only payments will that not be counted towards the total interest I pay at payoff time?

What are points exactly?

2

Well the payoff on an interest only loan is the loan amount itself. So if you borrow 65K, the payoff is 65K, unless you have worked it so the closing fees, costs, appraisal fees, etc were put into the loan.

A point is equal to 1% of the loan amount.

Hope that helps.

3

yes, thanks…

so on 65k loan, 4 points would be $2600, thats like a fee for giving me the loan?

so payoff would be $67,600???

4

No, the loan is 65K, Points you have to pay at closing.

You see a 15% interest only loan with a 1 year term means you are paying about 1.25% interest a month. Wow, that is a ton for a lender to make on their money isn’t it? Would you like a 1% return on yours? No, I didn’t think so.

So the lenders really make their money on the Points.

So you would have to come to closing with the points and pay the lender right there. If you want to work them into the loan, then typically the rate is higher.

5

thanks, I understand it better now…guess i’m just slow ;D

so a 6 months term with a 14% interest rate, what are payments on a 65k loan?

I was taking 14% of the 65k and thinking that was my monthly payment…

6

Wow…ok in its basic state.

14% is an APR or ANNUAL Rate. So

65,000 x .14 = Total annual payment
Divide this by 12, as there are 12 months in a year. That gives you your monthly payment.

A term just is the amount of time you have to pay off the principle of an interest only loan. So you have 6 months to pay back the 65K.

So you see, HML rates may be high, but they are quick, easy, and really make money on their points.

Remember the Golden Rule - He who has the gold, makes the rules. ha…

7

wow, that’s expensive if I did it right

65k, 14%, 6 month term

65kx14% = 9100 / 6 = $1517 MONTH!

???

8

I said divide by 12…12 you have to find a monthly payment.

You divided by 6.

65K x .14 = 9100/ YEAR

Now you want to know the monthly payment, that is:

9100/12 = 758.33/month payment.

Now some HMLs have loans with a prepayment penalty. I favor those without. So get the rehab done before your 2nd payment and you would pay

65000K principal - 1 payment of 758.33 total 65758.33.

Now the points and fees are separate.