A Loan Payoff Calculator Is A Must!
Why I have created this free loan payoff calculator for real estate investors? Because sometimes I see investors who are paying off a loan and they can get confused about how much interest is payable. This has happened to me a couple of times even when a bank has been the lender. When I asked the agent to show me how they got the amount owed, they said the computer takes care of it and they don’t know how it was done. A simple loan payoff calculator is all the needed.
The Cost of Money Can Eat Away Your Profits as a Real Estate Investor!
That is Exactly Why I Created My Loan Payment Calculator For You!
I understand that it is not the job of a clerk who isn’t lending the money to be able to calculate the interest due at the payoff of the loan. But you would think that the clerk would have some idea as well as be able to find a loan payoff calculator to use. This issue is much more important to real estate investors because the person who calculates the interest due on a private or hard money loan could do it incorrectly. Protect yourself by having a copy of my loan payoff calculator with you at all times.
The most common components of a loan payoff are simple and usually include:
The Number of Days the money was borrowed
The Interest Rate charged the borrower
The Amount of Money borrowed
The most difficult step is finding out how many calendar days the money was borrowed. Many people take out a calendar and start figuring out how many days in each month and adding them together and dividing the total by 360 or 365 days. The correct divisor is 365 (leap year = 366) but 360 is commonly used in certain types of interest calculations.
Because of this potential risk of overpayment of interest, I decided once and for all to create a calculator that was very easy to use and that either the lender or the borrower could use to determine in seconds what is owed at closing.
The typical way the interest amount due is calculated is to first determine how many days are involved in the loan. A couple of things and choices immediately come into play.
1.) Does the number of days include when the lender sent the money to the closing agent or does it start the day of closing?
This is a personal choice by the lender and it should be decided before the funds are sent to the closing agent. Ask yourself, “What if the property doesn’t close for three or four+ days?” The lender can have the funds returned to him for these few days but this adds to his wire fee costs and inconvenience. He should be paid for the time the money is sent or you could have trouble working with him in the future.
2.) Does the number of days for the loan include the day of closing or not because the lender doesn’t always get his money back the same day and sometimes it may take a weekend or more?
I describe the options to this issue and how I determined what I felt was the “best practice” in the industry. If the lender calculates the accrued interest using one of the online calculators available to the public, it doesn’t allow for the lender to get the closing day as part of the loan period.
3.) If points are charged on the loan, are they charged in the initial closing so the investor has to bring these funds to closing or is it paid when the deal closes?
Some lenders charge the points up front so the investor has to bring money to closing but in reality, the lender is getting his own money back in some ways.
The software that I designed takes into account that the closing date is counted as one of the days of interest that is due and payable to the lender at closing. For example, some lenders might calculate the number of days between January 2 and January 7 as five (5) days and others will say it is six (6) days.
For loan purposes both answers are correct but the lender might not like “losing” a day’s interest while a borrower wouldn’t like paying what he perceives as an “extra” day’s interest. I have chosen to default to the modality of adding the extra day into the calculations in this software. If you are a borrower and disagree, You can “back out” one day’s interest by subtracting a Per Deim amount that is also automatically calculated by the software.
I also included the Per Deim or Daily Rate of interest that the loan accrues as the closing agent will ask this of the lender and add any additional extra days interest if the sale doesn’t close as scheduled. I hope you have great success in using this loan payoff calculator.
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