Rising Sun Finance Corporation makes a private money loan to Traci for a rehab project in Trussville, AL, on a property that costs $400,000. Because the lender agrees to a 70% loan to value, Traci will be required to put 30% down so the total amount of the loan will be $280,000. The parameters of the note also include a one point origination fee which will be paid at the closing and a 18 month, interest only note with a 10% interest rate.
Therefore, Traci will be required to contribute a $120,000 down payment plus pay a $2,800 origination fee. Rising Sun Finance Corporation will collect $2,333 in monthly interest from the Traci. This is calculated by taking the total loan amount of $280,000, multiplying by the 10% interest rate, and then dividing that amount by 12. If Traci sells the house for $560,000 after 18 months, she would then realize a total profit of $115,200 after subtracting the original principle of $280,000, the money paid at closing of $120,000, the origination points of $2,800, and the total interest payments of $42,000. This amount doesn't account for rehab costs.