Undoubtedly, hard money loans have been a major way out for seasoned real estate investors due to its characteristic of funding at a much quicker rate than the conventional bank loan; this enables investors to acquire a property even when it has many bidders competing for it. Ever imagined a scenario where you demand money and get funded within a week? This is the sole reason why investors do not despise the hard money loan. But then, how do hard money lenders get their income and maintain the business? While hard money loans come in a shorter time, they come with a high-interest rate.
The interest rate on hard money loans vary from lenders to lenders as well from region to region. The hard money lenders in Florida will have an entirely different interest rate from those in Singapore. Although hard money lenders are always helpful when it comes to quick lending, they can recoup your investment in a case of failure to pay back. Therefore, it is wise to strive to ensure that when you borrow, you pay all due interest rate and in the end return the loan as agreed, try to do away with deferred interest to your possible best.
You may wonder what a deferred interest is, and how it relates to hard money loans. The clear explanation is not farfetched and it is perhaps something you have an idea already. Deferred interest is the portion of interest that is added up to the initial loan due to failure to pay up the interest due, this is duly agreed to the terms of the loan and allows the borrower to pay part of the due interest while the remaining interest is left to join the loan. Negative amortization comes to play when deferred interest causes the loan’s principal balance to increase.
In some cases, the need for deferred interest sets in; a situation where a borrower cannot meet up with the payable interest amount. Here, the borrower pays an interest amount that is less than the note rate, while the remaining part of the interest is added to the loan balance. This makes the borrower owe more than the initial loan amount. Also, there are some worse cases where borrowers fail to pay interest at all and perhaps seek for the interest to be deferred to the end of the loan. There is no gainsaying that the hard money loan is not for you if you cannot close as agreed.
Every hard money lender is into business with the core aim of making a profit. Sometimes, hard money loans allow for deferred payment but it is best to close or you take out of this form of loan. While you settle for hard money loans instead of the conventional loan from standard financial institutions, it is excellent that you put in your best to meet up with the terms else you collateral suffer it.