Prime Time Finance Corporation makes a loan to Bertha for a renovation project in the Saint Charles area of Waldorf, MD, on a property that costs $310,000. Because the lender sets a 85% loan-to-value, Bertha will be required to put 15% down so the amount of the note will be $263,500. The note is interest only, with monthly payments, and is for 12 months at 12% interest with 5 origination points paid when the deal closes.
In addition to paying the $13,175 origination fee, Bertha will also need to fund $46,500 of the purchase with her own money, or 15% of the purchase price. The lender will collect $2,635 in monthly interest payments from the Bertha. This is computed by taking the full note amount of $263,500, multiplying by the 12% rate of interest, and then dividing that number by 12. If Bertha accomplishes her goal of a $387,500 sales price at the end of the loan term, she would earn a total profit of $32,705 after repaying the principle amount and deducting the cash she brought to closing, the origination fee, and the total monthly interest payments.