Opal takes a hard money loan from All Star Finance Corporation in order to renovate a townhome to flip in Germantown, MD. The list price of the house is $390,000. As the lender sets a 85% loan to value, Opal will have to put 15% down and the amount of the loan will be $331,500. The terms of the loan dictate a 13% note for 12 months. They also stipulate a 2 point origination fee, that will also have to be paid upon closing.
In accordance with the terms of the note, Opal will need to contribute a $6,630 origination fee in addition to 15% of the sales price, or $58,500, based on the 85% LTV. Once the deal closes, she will have to pay All Star Finance Corporation $3,591 in monthly interest payments, or 13% times $331,500 divided by 12 months in a year. Opal's intention is to complete the house within the 12 months and re-sell it for $468,000. If she succeeds she will earn a profit of $28,275 ($468,000 sales price - $331,500 principle amount - $58,500 cash paid at closing - $6,630 origination fee - $43,095 in total interest payments.