How much interest should you be paying on private mortgage loans?
Real estate investors have increasingly enlisted the assistance of private mortgage loans, transactional funding and hard money for funding their deals. Investment minded individuals find it difficult to comply with the high interest rates and paying points that often accompany private lenders. However, if used correctly, even high interest rates on short term loans may be extremely lucrative for investors.
So what’s a fair price to pay or offer?
While double digit rates provided by private mortgage loans are typically harder to qualify for, their benefits may still facilitate monetary gains. Opportunity costs may greatly outweigh the high interest rates, which can average anywhere between 10 – 14 percent. These short term loans allow for immediate turn around rates, providing you with the ability to get in and out as fast as possible. If the numbers work and the net profit is acceptable, and you are sure it is going to be flipped within 30 days or less, it matters very little how much interest you are paying.
Of course, it is always advantageous to look for the best deal possible. Lower interest rates on private mortgage loans will only result in more money for the investor. However, if done correctly, even loans with high interest rates can be profitable. Private mortgage lenders, whether already lending or waiting to be approached with a new idea, can be great sources of fast and easy capital. Almost invariably, real estate investors expect private lenders to charge less than market rates demand. By comparison, lenders feel they are entitled to charge more for their assistance.
It has generally been concluded that respectable rates and agreeable terms are more than enough to enlist the help of a private lender. Knowing specific advantages provided by private lenders will make loans easier to get. Just make sure you are taking all factors into consideration. Familiarize yourself with penalties for early pay off, points being charged, lender junk fees and ease of doing business with them. Understanding the penalties and consequences of failing to pay off private mortgage loans on time will also help to gauge it is acceptable or not.