All Forum Posts by: Ray Bontrager

Not exactly. Few hard money loans have prepayment penalties (some do, but not most). in this instance, you pay interest on an annualized basis at the interest rate of 12% (or it could be another rate). In this case, let's say you have a blance of $100K at 12% interest. Let's say you have the loan open for 4 months. Monthly that's ($100K * 12%)/12 = $1000/mo in interest. If you have it open for 4 months, that's $4K interest. Points or an Origination Fee is fully earned when the loan is signed. For a $100K loan with 2.5% Points, that's a $2500 fee up front. usually, they will fund $97,500 and keep the $2500. In this case, you're paying the $2500 + $4000 in interest. Does that make sense?

Thanks. That makes a lot more sense. I was looking at it as a 12% interest for the loan without an annualized basis but the annualized part makes sense now. So the quicker I get the money back to the lender the less interest I will be paying.

I know these numbers will be odd, but go with it. It makes the math easy in our heads. Let's say that you find a run down place you can get for $70K and you need to put $30K into it (total of $100K). Let's also say you're approved for 85% at 12% interest and 2.5% points/origination fee. You'll usually bring your 15%, or $15K in this case to the table and the lender funds the other $55K and they will have the other $30K available for you to take in a series of draws. You do some work, then call them for a draw. They send out someone to make sure you're actually doing it. Once that happens, they wire the $ to you. You usually pay interest-only on what you've drawn on a monthly basis. Different lenders treat this differently. Once you get the C/O, you either sell it or refinance it into a longer-term facility like a DSCR loan. Does that help you? Please ask your questions and we'll clarify.