Axis Lending Company issues a loan to Ramona for a renovation project in Clinton, MD, on a house that is listed for $390,000. The terms of the note include a 60% loan to value (LTV), so she must contribute 40% of the price as cash at closing, making the principle loan amount $234,000. The terms of the deal dictate a 13% note for 18 months. They also require a 1 point origination fee, which will also be paid at closing.
Therefore, the borrower will be required to contribute a $156,000 down payment plus pay a $2,340 origination fee. The lender will collect $2,535 in monthly interest payments from the Ramona. This is calculated by taking the full loan value of $234,000, multiplying that by the 13% interest rate, and then dividing that amount by 12. Ramona's plan is to finish the remodel within the 18 months and re-sell it for $487,500. If she succeeds she will make a profit of $49,530 ($487,500 price - $234,000 principle amount - $156,000 down payment - $2,340 origination fee - $45,630 in total interest.