Oscar takes a loan from Victory Lending Group in order to remodel a property to resale in Haverhill, MA. The sales price of the house is $280,000. As the lender agrees to a 85% loan to value, Oscar will need to put 15% down and the principle amount of the note will be $238,000. The loan also includes the following features: 1) a 6 month term, 2) a 9% interest-only note, and 3) a two point origination charge.
In accordance with the terms of the deal, Oscar will have to pay a $4,760 origination fee plus 15% of the sales price, or $42,000, based on the 85% LTV. The lender will collect $1,785 in monthly interest from the borrower. This is calculated by taking the full note value of $238,000, multiplying that by the 9% rate of interest, and then dividing that amount by 12. If Oscar accomplishes his goal of a $420,000 total sales price when the loan term expires, he would earn a gross profit of $124,530 after repaying the principle and subtracting the money he brought to closing, the origination fee, and the total monthly interest payments.