Johnnie takes a loan from Cordial Funding Corporation in order to rehab a house to flip in Rochester, NH. The sales price of the house is $160,000. The terms of the note include a 85% loan to value (LTV), so he must bring 15% of the price as cash to closing, which makes the principle note amount $136,000. The parameters of the note also stipulate a five point origination fee that will be paid at the closing and a 12 month, interest-only note with a 13% interest rate.
On top of the $6,800 origination fee, Johnnie will also need to fund $24,000 of the purchase with his own money, or 15% of the sales price. Cordial Funding Corporation will collect $1,473 in monthly interest from the borrower. This is calculated by taking the total note value of $136,000, multiplying that by the 13% interest rate, and then dividing that number by 12. Johnnie's intention is to complete the project by the end of the 12 months and resell it for $240,000. If he succeeds he will collect a total profit of $55,520 ($240,000 price - $136,000 principle - $24,000 cash at closing - $6,800 origination points - $17,680 in total interest payments.