Dennis takes a bridge loan from Big Lake Funding Company in order to renovate a townhouse to resale in Auke Bay, AK. The list price of the house is $370,000. The lender agrees to issue a loan with a 65% loan-to-value (LTV) so they will loan $240,500 on the house. The loan is interest-only, with monthly payments, and is for 18 months at 13% interest with 5 points to be paid at closing.
Therefore, the borrower will be required to contribute a $129,500 down payment plus pay a $12,025 origination fee. After the deal closes, he will pay Big Lake Funding Company $2,605 in monthly interest payments, or 13% multiplied by $240,500 divided by 12 months in the year. At the expiration of the loan, he sells the renovated house for $499,500. After subtracting the $46,898 in total interest payments ($2,605 multiplied by 18 months), the $12,025 origination fee, the $240,500 principle on the loan, and the $129,500 he brought to the closing, he will earn a total profit of $70,578 ($499,500 sales price minus $428,923 in total costs). This amount would then be reduced by any rehab costs paid out of pocket.