How Do Hard Money Lenders Structure Loans

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.

last updated Thursday, May 18, 2023
#Balloon Payments #Hard Money Loans

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John Burson

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

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

Hard Money Loans

Commercial hard money lenders or brokers 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 commercial hard money lenders' decisions are based on individual inclinations for risk and the ability to do the loan. Therefore, if you have a high debt ratio or poor credit, you can still consult commercial hard money lenders to help you in your financial crisis.

High Interests

The first thing you will observe about commercial hard money loans is that they often have higher interest rates than conventional loans. The interest rates are often double or even triple that of your credit union or bank. However, your bank will likely be unwilling to fund your project, so you search 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 you apply for.

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. Making loan interest payments 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 your loans and the loan's principal. During the loan life, this will make things easier for you.

Balloon Payments

You may be making only interest payments throughout the life of your loan; however, you will have to face a vast 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 total amount of the loan principal at the end of the loan term. This means that you must be prepared to retire the loan balance. Whether you plan to refinance, save 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, if you are late in making your payment, you can be charged a late 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 more money from the transaction. Therefore, ensure that you have read and understood all the penalties and fees included with your commercial hard money loan.

 
 
 

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