The hard money mortgages are mortgage refinancing at a higher interest rate which is offered to borrowers with bad credit history. Using the property as collateral, the borrowers with bad credit history try to get mortgage refinancing on fifty to seventy percent of the market value. Hence, the hard money lenders require equity on the property.
The hard money mortgages started in the 1950s. The term of hard money mortgages are more common in United States and Canada. After the mortgage lenders suffered the meltdown of hard money mortgages on early 1980s and 1990s, the mortgage lenders lowered the loan to value ratio. The financing of property that exceeded the market value was to blame for the meltdown.
Banks or financial institutions would normally reject the financing on extreme case of bad credit history. At the beginning, the borrowers seek the mortgage refinancing on conventional mortgage refinancing. After the borrowers exhaust all possible mortgage refinancing options, the borrowers seeks the hard money mortgage refinancing as the last resort.
The hard money lenders are typically the investors group, trust, or private individuals. Unlike banks or financial institutions, the hard money lenders will take on the risks. In return, the borrowers pay between ten to nineteen interest rates. When the borrower defaults on mortgage payment, the hard money lenders charge between twenty and twenty nine percent. The annual percentage rate would normally ranges between nineteen and twenty eight percent.
The points always exist on hard money mortgages. It is normal to see four to ten points. In return, the borrower prevents the quick sale or foreclosure of the property.
The hard money lenders accept from fifty to seventy percent of loan to value ratio (LVR). For example, the home property has a market value of $300,000. The hard money lenders can lend as much as $210,000 ($300,000 x 70%).
The equity on property must have appreciated for years. The borrowers gain equity on property as the borrowers pays off the mortgage, fixes up the property, and adds capital improvement.