I need help understanding interest rates on hardmoney

Financing, Hard Money Lenders, Private Money
1

If I borrow $290k for the purchase and the price of repairs and they charge 16% will that be charged monthly or yearly? Is that accurate that 16% is $46,400 a month? or a year? at the end of selling the property?

I have no idea how it works and this is a hypothetical scenario just trying to figure out if hard money lends would expect you to pay this $46, 400 a month or at the end of the loan?

Any insight would be greatly appreciated.

2

The interest is figured based on whatever amortization schedule they’re using, so use a mortgage calculator to figure out what the principal and interest ends up being on $290K @ 16% interest. Whatever the interest portion is, thats what you’re going to be paying each month over the period of the HM loan, if its an interest-only loan. Then the full balance still comes due at the end of the loan period when you refi out or whatever your exit strategy may be.

Some lenders will let you roll the interest payments into the loan amount if it doesn’t exceed their max LTV standards.

3

Hey Jake this is a short term hard money loan for a yr. if that gives you more insight. Its not a traditional mortagage through a bank.

4

Yes, I understand that its a short term loan, 99% of HM loans are, lets just use the numbers in your deal to clarify:

Principal balance=$290,000
Interest=16% (computed anually)
$290,000*16%=$46,400 anually
$46,400/12 months=$3,867/month for interest-only payments

Since you’re not paying down any of the principal of the loan, you will still owe $290,000 at the end of the one year loan term. Make sense?

5

Hey Jake,

Thanks so much. One more question…say if I sold the house before the 12 month contract is up… If I sold it after 3 months, would I only owe the interest for three months or would I still have to pay the entire amount of $46,400 anyway?

6

You would have to speak with your lender in regards to that question. Most likely you would not owe any interest after the home is sold unless you agreed to a pre-payment penalty when you negotiated the deal with the lender. Most of the time the hard money lender is making a large portion of their money at closing in fees so they are happy to have you sell the house and pay them off so they can loan that money to you again or someone else.

7

Thanks Chris!