Hard Money Lending Example - Is this Accurate?
Hello!
I am looking to better understand HML and am looking for feedback to verify if my three examples are in the ballpark of how Hard Money Lending works? I am not counting and documentation fees for simplicity and am most interested in the 3rd one below with compounding (i.e. if I want to borrow 100%). But mainly I want to make sure I have a solid understanding of HML.
I look forward to any advice or guidance you can give me.
Here is how I understand Hard Money Lending not using points:
-----------------------------------------------------------------------------------
Hard Money Example 1:
Borrower flip a house and borrow 100,000 in total and payoff the loan on it after
3 months. The interest rate is 18% on this house, plus ZERO points.
Start) - Beginning $100k needed, no points to deal with and borrower received $100k.
1) After Month 1 - You pay $1,500/month to Lender
2) After Month 2 - You pay $1,500/month to Lender
3) After Month 3 - You pay $1,500/month to Lender
End) - Borrower sells house and pays back lender $100,000 total.
Total interest paid is $3,000.
Total point origination costs paid is $0.
Total loan costs paid is $3,000.
Borrower pays the equivalent of 18%
-----------------------------------------------------------------------------------
Hard Money Example 2:
Borrower flip a house and borrow 100,000 in total, and payoff the loan on it after
3 months. The interest rate is 12% on each house, plus 3 points.
Start) - Beginning $100k needed, 3 points to deal with so borrower pays lender $3000 up front and receives $100k.
1) After Month 1 - You pay $1,000/month to Lender
2) After Month 2 - You pay $1,000/month to Lender
3) After Month 3 - You pay $1,000/month to Lender
End) - Borrower sells house and pays back lender $100,000 total.
Total interest paid is $3,000.
Total point origination costs paid is $3,000.
Total loan costs paid is $6,000.
Borrower pays the equivalent of 24%
-----------------------------------------------------------------------------------
Hard Money Example 3:
Borrower flip a house and borrow 100,000 in total, and payoff the loan on it after
3 months. The interest rate is 12% on each house, plus 3 points.
Borrower wants to roll points and interest into the loan to be paid at selling of the house.
Does this mean the loan costs and interest compound?
Start) - Beginning $100k needed, points rolled to total owed, so loan start total
owed back to lender is $103,092.78 (100k divided by (100% minus 3% points = 97% )) and
borrower receives $100k.
1) After Month 1 - Interest after month one is $103,092.78 times 1% (or 12% / 12 months) is $1,030.93, added to start total total leaves $104,123.71 total owed.
2) After Month 2 - Interest after month one is $104,123.71 times 1% (or 12% / 12 months) is $1,041.24, added to Month 1 end total leaves $105,164.95 total owed.
3) After Month 3 - Interest after month one is $105,164.95 times 1% (or 12% / 12 months) is $1,051.65, added to Month 2 end total leaves $106,216.60 total owed.
End) Borrower sells house and pays back lender $106,216.60 total.
Is this accurate for a HML situation?
Total interest paid is $3,123.82.
Total point origination costs paid is $3,092.78.
Total loan costs paid is $6,216.60.
Borrower pays the equivalent of 24.8664%
-----------------------------------------------------------------------------------
Thank you for your time!
-Kurt