West Shore Finance Company issues a loan to Anthony for a renovation project in Reisterstown, MD, on a house that is listed for $270,000. The loan-to-value (LTV) on the loan is 85%. This means Anthony will have to bring 15% of the purchase price to the closing and the principle will be $229,500 on the note. The loan is interest-only, with monthly payments, and is for 18 months at 13% interest with 1 points paid at the closing.
The borrower will need to bring a total of $32,400 up front to cover the $40,500 down payment plus the $2,295 origination fee. The monthly interest-only payments will then total $2,486 to the lender. If Anthony sells the property for $351,000 after 18 months, he would then make a total profit of $33,953 after deducting the original principle of $229,500, the cash paid at the close of $40,500, the origination fee of $2,295, and the aggregate interest payments of $44,753. This profit doesn't account for remodeling costs.