HML Example

[Jarred S.]

I am having trouble understanding a hard money lending example. Everyone I have talked to has recommended it and I have never used this before.

Can someone help explain the basics of how to get to a monthly payment for the following circumstances:

APR Value $115,000
MAX LOAN: 65%
RATE: 15% + 1 POINT
MINIMUM TERM: 6 MONTHS
MAXIMUM TERM: 12 MONTHS
LOAN TYPE: INTEREST ONLY

Any feedback would be greatly appreciated.

Thanks,
Jarred

[Ann Bellamy]

Jarred S., hard money loans are simple interest. So you take the outstanding principal balance X 15% to get your annual interest. Then divide by 12 to get your monthly payment. (or divide by 360 days (# days in a lending year) X 30 (30 days in a month), as Bill Gulley said.

To get your total loan amount take your ARV X 65% if that's what your HML told you, and that is your total loan amount, as Jon K. said.

If you are getting part of it at purchase, and part in construction draws, the outstanding principal balance is the amount disbursed at purchase, plus the amount of any construction draws taken. that's why Bill Gulley gave you the 360 day formula, because the daily interest changes when a draw is disbursed.

So 115,000 X .65 = 74,750 principal balance if all disbursed at close
74,750 X .15 = 11,212.50 annual interest
11,212.50 / 12 = 934.38 as Jon said

The calculation is a little more involved if you are taking construction draws, but payment should always be less than the $934.38 until all draw funds are disbursed.

15% plus 1 point isn't bad, but all hard money rates are local, unless you are using a national company. The reason you have a 6 mo minimum is because they are only charging 1 point. If you pay more points you can probably get rid of the minimum.