Interim loan financing can be used for a variety of purposes that typically fall in the industry of real estate investment. When the interest rates for loans are rather high, taking out a permanent loan on a piece of property that the investor plans on having around for a while—such as rent or other passive income properties—might end up costing the investor thousands of dollars or more before the loan is paid off.
Interim loan financing comes in between these permanent loans and floor loans used for starting up development on a property. The loan used usually has a term of 6 months to 5 years, 3 years being the standard length. At that point the investor will often finance a permanent loan as well. If the investor should decide to terminate the loan early there will often be a prepayment penalty, unless they choose to finance a maximum permanent loan at that time.
Interim loan financing can be used for a few different purposes. Some investors will utilize it to purchase more pieces of property without having to sell current property they hold. A good example of this might be when the market price of homes in the area has gone down a fair amount. Purchasing one more pieces of attractive real estate could be more profitable in the long term when the cost of housing is down. Interim loan financing can range into the millions of dollars with the right lender, so taking out one of these loans and buying up plenty of available property can be a prudent investment strategy. Once the market prices increase again the investor could then sell a few to cut down on the large costs of interest rates.
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