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How Do Hard Money Lenders Structure Loans


paperfree Aditi Bansal

Updated on Monday, June 05, 2017

Using the help of commercial hard money lenders can provide you with a viable option in case you are experiencing financial difficulties. For you to be able to use commercial hard money loans, you should understand how such loans are structures.

tags  #Balloon Payments  #Commercial hard moneylender #

 

Using the help of commercial hard money lenders can provide you with a viable option in case you are experiencing financial difficulties. For you to be able to use commercial hard money loans, you should understand how such loans are structures.

Below are some of the basics of commercial hard money loans structure.

Hard Money Loans

Commercial hard money lenders or brokers are individuals who operate outside the conventional lending industry. These commercial hard money lenders have extra money they can lend to you and increase the return on their investment. Most of the commercial hard money lenders decision is based on the individual inclinations for risk and also the ability to do the loan. Therefore, if you have a high debt ratio or a poor credit you can still consult commercial hard money lenders to help you in your financial crisis.

High Interests

The first thing that you will observe about commercial hard money loans is that they often have higher interest rates compared to conventional loans. The interest rates are often double or even triple that of your credit union or bank. However, most likely your bank won’t be willing to fund your specific project, and that’s why you are searching for reliable commercial hard money lenders. These lenders are aware that they are your last option, and they will charge accordingly. Therefore, be prepared to pay handsomely for the commercial hard money loan that you apply.

Payments

Most commercial hard money lenders will create a fixed short term payment schedule for you. During the loan lifetime, your lender may require that you only pay the loan interest. When you make loan interest payments, they will give you more flexibility and time during your financial situation. Commercial hard money lenders know that you most likely don’t have much money with you and can postpone all other payments on the principal of your loan. During the loan life, this will make things easier for you.

Balloon Payments

You may be just making only interest payments throughout the life of your loan; however, you will have to face a huge balloon payment during the finishing period of the loan term. Most hard money loans are tailored to be balloon types of loans. Therefore, you will have to pay the full amount of the loan principal at the end of the loan term. This means that you have to be prepared on how to retire the loan balance. Whether you are planning to refinance, save up and pay the loan off, or sell the property that has secured your loan, you will need a plan to help pay off the loan.

Penalties

Almost all commercial hard money loans come with very harsh penalties. For instance, in case you are late in making your payment, you can be charged a lateness fee. Most commercial hard money loans also come with a prepayment penalty. Commercial hard money lenders know that you will most likely pay the commercial hard money loan before the balloon payment is due, and will want to get some more money from the transaction. Therefore, ensure that you have read and understood all the penalties and fees that are included with your commercial hard money loan.



This page with a focus on Balloon Payments, Commercial hard moneylender was shared by Aditi Bansal.

 
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