All Star Lending Company makes a loan to Kirk for a renovation project in the Countryside Northridge Homeowners Assoc subdivision of Palm Harbor, FL, on a property that costs $340,000. The terms of the loan include a 70% loan to value (LTV), so he must bring 30% of the price as cash at closing, making the principle note amount $238,000. The note is interest-only, with monthly payments, and is for 12 months at 14% interest with 1 points to be paid when the deal closes.
Kirk will need to bring $102,000 to closing (30% on the 70% LTV), plus he will need to pay the $2,380 origination fee. The monthly interest-only payments will then total $2,777 to All Star Lending Company. If Kirk sells the house for $425,000 after 12 months, he would earn a total profit of $49,300 after deducting the principle of $238,000, the funds paid at closing of $102,000, the origination points of $2,380, and the aggregate interest payments of $33,320. This amount doesn't include rehab costs.