Choosing Between Six and Twelve Month Term Loans

The term length of your hard money loan could be costing you thousands of dollars more than you need to be paying.

Recently, several new investors have asked us how long are term lengths are. Our standard loans last for a 12-month term. We can even help our clients refinance if they need additional time. When we’ve informed our new investors about our 12-month term, they breathe a sigh of relief.

Most hard money lenders are giving investors a tight six-month term.

We DO NOT recommend using a six-month term. Here are the TOP 5 REASONS why you should insist on a 12-month term with your hard money lender.

1. Extension fees: Some lenders hope that you will fail to successfully rehab and sell your investment property within the six-month term so they can charge an extension fee. Some lenders will even reduce their rates in order to lure people into accepting a shorter term length so that they can charge a hefty extension fee.
2. Additional Points: Not only will you be charged an extension fee, but some lenders will charge 1-4 points when you extend your loan! Any “savings” you may have received by accepting a shorter term length will be wiped out when you are charged 1-4 points on your extension.
3. Higher Interest Rates: Yes, on top of extensions fees and points… You could also face higher interest rates. It is not uncommon for a lender to increase their interest rate 2-4% upon extension of the loan.
4. Completing The Rehab Project: Every investor knows that you can’t anticipate every little detail about flipping a house. If your lender takes too much time to complete a draw you could be pushed into another month of interest payments. Maybe it rains three weekends in a row and you are unable to work on your project. You could risk going over your six-month term and be forced to pay extension fees, points, and a higher interest rate.

Most of Corridor Funding’s clients take 4-8 months to complete (depending upon the size scope of the rehab and time it takes to sell). For this reason, we give investors 12 months to complete their fix and flip project.

5. More Time = More Flexibility: When you have extra time to complete the rehab on a property you have a lot more options.

With a 12 month loan, you have the flexibility to hold on to the property to wait for the best offer and won’t have to take the first one that comes your way.

You could add extra touches to the property in order to increase the value of the property.

You could decide to refinance into a longer-term loan and choose to keep the house as a rental property.

Most of the time, hard money lenders aren’t even able to offer lower rates for their six-month terms. If you are stuck in a six-month hard money loan, or your hard money lender won’t do anything longer than six months, please reach out to us!