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Information about Interest Real Estate Rates and Fees
This is where things get interesting but don't let this become your biggest concern. Relationships are EVERYTHING when borrowers and lenders get together. Working with a lender who truly understands your needs but who also can manage any obstacles that crop up throughout a project life cycle is critical.
Yes, your profit will be a product of your debt servicing and acquisition costs so seeking the best rate you can get is important. I would suggest, however, working with a lender who understands you and your project is just as critical.
By no means can I quote on behalf of all private or syndicated lenders but I can provide a range of interest rates and fees you will pay. In most cases, you will be paying simple interest as well as fees. Interest rates range from 8 per cent to 14 per cent in good cases for a first position mortgage and can vary from 12 per cent - 18 per cent on most second position mortgages.
Fees vary widely depending on the lender. They are often calculated as a percentage of dollars being loaned to you and have been called by various labels. There are lender fees, commitment fees, advance fees, broker fees and various other types of fees. The rates can fluctuate depending on your project but expect 2 percent per term in best case scenarios to double digits depending on the project type, term and risk of project. Be sure to familiarize yourself with the fees you are expected to pay.
Sounds high? Not for those who value the flexibility and simplicity of this form of lending. These are short-term loans designed for your specific needs. The return and profits must be captured by the lender in this short time and therefore first appear onerous to those unfamiliar with this type of mortgage facility.
Remember how much money the banks make from your residential mortgage? If you take 25 years to pay off your amortized home mortgage of $400,000.00 and average 5% interest over the life of the mortgage, you will have paid upwards of $300,000.00 in interest only, for the privilege of using the bank's money. Put another way, that's just about a 75% return to the banks. This is assuming a few issues:
1. You don't move your mortgage to another lender and start another 25 year
term.
2. You maintain that 5% interest rate for the life of the mortgage.
3. You haven't made additional payments along the way.
Keep in mind that the risk/reward ratio is always at work here. Investors - those who supply the investment dollars to the brokerage or administrator (usually the private lender) - are taking a risk in lending you their hard-earned funds. And to this end, their reward must match their investment comfort level.
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