How do do Hard Money Loans get paid off?

[Emery Taber]

-You pay off the interest from the loan monthly and then have a balloon payment with the amount the load was given.

Example: I get a 100k 18 Month loan at a 15% interest rate (115k total 100k loan 15k intrest). So I pay $833.33 a month (15k/18mon) and 100k at 18 months?  

Bonus Question: I always hear that the normal seasoning period for a Re-Finance is 12 months and I also hear that most Hard Money Loads are for 12 months. Doesn't that guarantee that you will be late on paying off the loan because you wont get the Re-Fi until after the loan is due?

[Kyle J.]

Hard money loans are most commonly used for fix and flips, so in those cases the loan would get paid off when the property gets sold. But in the event you were going to hold a property long-term that you bought with a hard money loan, you’d need to refi out of it and pay it off before the loan’s term is up (12 months or whatever it is).

You can generally do a rate/term refi whenever. But if you're trying to do a cashout refi or use a much higher ARV than your purchase price, then some lenders will require a 6 month seasoning.

Lastly, up until you payoff the loan or refi out of it, most hard money loans require interest-only monthly payments. You alluded to this, but you did the math wrong.

Using your numbers of a $100k loan at 15% interest rate, the monthly interest payment would be $1,250 (not $833.33). The way you figure it is $100k x .15 = $15k/12 = $1,250. (You divide the total interest by 12 because that’s how many months are in a year and it’s an annual interest rate. Doing so gives you the monthly interest payment.)

Hope this makes sense.