Loan Payoff Calculator – Know If Your Hard Money Lender Is Over Charging You.
Before diving straight into the loan payoff calculator, let’s start with the basics about hard money lending. Whenever someone borrows money to purchase a property they typically have interest and principal payments due. The interest on the loan starts from the very beginning of the loan. At the closing table the borrower will usually prepay a few days interest. This interest is until his regular monthly payments start.
For investors, a hard money lender can have you prepay interest. The lender may also simply have you start your payments 30 days from the date of closing. In some cases, your lender will defer the interest and points to whenever you sell the property. The important aspect is when you sell the property, you will be repaying your lender interest and principal at the closing table. It will be repaid with the funds being taken from the proceeds of the sale.
As I look at closing statements for investors, I notice that the amount of accrued interest at the sale of the property was often incorrect. Hard money lenders had often added additional days onto the number of days the funds were borrowed. Initially this may not seem to be very important. However in the HUD Closing Statements I reviewed, it amounted to hundreds of dollars.
Because of this I decided to put together a Loan Payoff Calculator. The borrower and the lender can now get “instant” access to the correct principal and interest payoff of an investor’s loan. The key to calculating a correct payoff is to know the exact number of days between when the money was borrowed and when it was repaid. This may sound simple. However, it can get interesting because of the different number of days in various months. The calculator that I programmed takes this difference in monthly days into account automatically.
There are a few different scenarios when an investor can use the calculator
~The lender charges a flat fee to use the money. Typically this is transactional funding. There is no accrued interest.
~The lender charges interest and points at the sale of the property.
~The lender charges monthly interest, accrued interest and principal at the closing.
~The lender charges points, monthly interest and accrued interest at the closing.
To do any of the above calculations that deal with accrued interest you can use the calculator. Simply adjust the various data inputs into the spreadsheet. I suggest you check what your lender calculates no matter how much you trust them. Many times an incorrect interest calculation happens. Perhaps it happens because of the user. It can also be because the formula they are using includes too many days. This is sometimes by design of the lender.
Too many times we have asked how the accrued interest was calculated. The person doing the closing found out the lender had added 3 – 6 days after the closing. Perhaps they figured no one would know. Alternately it could be an honest error in calculating the number of days in one or two months. Maybe the lender could have used an average number of days (30) in each month to calculate the interest due. Make sure to use the calculator. If there is an error in your favor you have an option to tell the lender. It is likely you will be saving yourself money most of the time.
To use the free loan payoff calculator, you can find it here at https://transactionalfundingfl.com/loan-payoff-calculator/
To your limitless success,