What Should New Investors Know About Loan Payments?
Categories: Blog Posts
New investors in the real estate game often struggle with the details of their first loan payments.
Real estate, like many fields, has its own vocabulary and rules. This can make it extra challenging for people who are trying to enter the real estate investing world.
So many people come to us confused, asking for guidance as they’re getting started.
Real estate is all about leverage. Understanding the lingo and how to calculate the most common rates will help you be money-wise and confident in your investment journey.
This is especially true (and important!) when it comes to paying off your loans.
What Should You Know About “Payments”
When do payments start? How much do they cost?
If you’re new to real estate investing, it’s a good idea to ask a lot of questions about payments so you know what to have in your budget before you begin.
A few terms to look out for:
“Arrears”
Product interest always shows up after the fact (in “arrears”). Basically, your July 1st payment is going to pay all of the interest for June.
Interest accumulates over the course of a month. Then the bill shows up after.
This how all mortgages are set up. So when you’re trying to figure out your payments and when they’re due, always look ahead 30-45 days after you close for the first payment.
Payments are typically due on the 1st or 15th of the month. Check with your specific lender to make sure you know your pay period.
“Simple Interest”
Above, we showed you how to calculate your monthly interest rate based on the simple interest rate of your loan.
When you start paying off your loan, you’ll see a big accumulation of interest. If you’ve taken time to calculate your monthly rate, this shouldn’t be a surprise to you. You can multiply that monthly rate by however long your project took to find your overall interest cost.
You need money to make money in real estate, but you want to know the cost ahead of time as closely as possible.
Take time to figure out these numbers up front so you don’t have any surprises.
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