J & T Funding issues a hard money loan to Nancy for a rehab project in Battle Creek, MI, on a property that costs $250,000. The terms of the loan include a 65% loan-to-value (LTV), so she must contribute 35% of the price as cash to closing, which makes the principle note amount $162,500. The parameters of the deal also stipulate a five point origination fee which will be paid at the closing and a 12 month, interest-only note with a 12% rate of interest.
On top of the $8,125 origination fee, Nancy will also need to fund $87,500 of the purchase with her own funds, or 35% of the purchase price. After the deal closes, she will have to pay J & T Funding $1,625 in monthly interest fees, or 12% multiplied times $162,500 divided by 12 months in a year. Nancy's intention is to complete the remodel within the 12 months and sell it for $362,500. If she succeeds she will make a profit of $84,875 ($362,500 sales price - $162,500 principle - $87,500 cash at closing - $8,125 origination points - $19,500 in total interest payments.