Lender · Los Angeles, CA · Member since 2012 · 147 posts · 76 votes
Is a "no points" hard money loan important? I'm getting that suggestion from different brokers who bring me loans. Also, we just did one for a repeat borrower. Had to build in a prepayment penalty to make up for some of the loss, but clearly borrowers want to cut their overall cost.
I guess it may make them feel better, but as you showed by putting in the prepayment clause, the lender isn't going to lose money because the points are off the table, it will be recouped elsewhere in the deal.
I just refi'd my car, they tried to sell me on the deal by showing me I was saving $50 per month, I had to find for myself, that 'saving' was going to cost me 3,000 in fees and extras added to the principal. People will get excited by the front end of a deal, and not realize the lender isn't a charity, and will make up for the perceived discount.
(After 1.5 hours, I won the refi war 2% lower rate, $150 in fees)
I know a few west coast investors who are now getting "no points" hard money loans, and they love it.
Personally, if I could get "no points" hard money, I'd probably use it myself, even with the higher interest rate. For those who turn their properties quickly (less than 4 months), the points are the killer...
Thanks for the feedback. This is exactly what I was looking for.
If we do this on a larger scale, it will have to be a lower overall cost to the borrower, or as Andrew pointed out, it's just baloney. ( I use baloney rather than the other "b" word.)
But I'm thinking that with LTV, if people don't have to take points out of the up front money that's limited by the LTV, then they get more money to work with.
I'm also thinking of doing this with a program where if it's not a purchase, we do no points, then pay all the borrower's escrow, title and recording costs, making it truly a lower cost item.
Anyway, really appreciate the feedback, gentlemen.
I agree that you may need the points to pay your overhead.
With 70% of my hard money loans being my own money, I'm more concerned with not having money sit idle. Plus, if we don't make loans we don't get any points anyway. And our loan servicing income covers our overhead.
But neither of us is either wrong or right, just different business models. There are certainly more people working with your business model of charging primarily points and making their money off of points, then there are working with my circumstances, which may be another reason I should pursue this further.