Question submitted by a small business owner in Healdsburg, CA.
If my loan is for 5 years, can I pay it off early? (Before the five years.)
Answer: Yes. Absolutely.
As a matter of fact, I hope you can pay it off as soon as possible.
Private money loans are short-term in nature. They are not designed to be your traditional 30-year mortgage. Private money is a vehicle that can help you achieve your short-term goals so you can then get your long-term fixed-rate mortgage.
We realize that the interest rates are higher on private money loans compared to conventional mortgages, so it only makes sense that you would want to pay it off as quickly as you can.
This is why it’s a good idea to have an exit strategy in place before entering into a loan agreement for private money.
You should already have a plan for how long you think you’ll need the money (loan) for.
Some real estate investors need very short-term financing for flipping homes. (Buy and sell quickly.)
Other real estate investors may need anywhere from 6 months to 2 years so they can make improvements to a property, get it rented out, and then apply for a traditional bank mortgage. (Once they can prove they have tenants and rental income to qualify for conventional loan.)
I hope this has been helpful. Here’s some more free resources below.
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