Oregon Construction Loan Financing Term Sheet
Description
How to fill out Construction Loan Financing Term Sheet?
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FAQ
If the loan is a revolving line of credit or similar arrangement with no scheduled payments, loan costs generally should be amortized using the straight-line method over the period the line is active.
Concepts Statement 6 further states that debt issuance costs cannot be an asset because they provide no future economic benefit.
A term sheet is designed to help the parties to the loan to set out clearly and in advance, the terms on which the loan will be made. It serves as a non-binding letter of intent which summarises all the important financial and legal terms as well as quantifying the amount of the loan and its repayment.
During the construction of a building, the cost of interest on a construction loan should be capitalized. Companies should capitalize all avoidable interest costs it incurs during the construction phase of property, plant, and equipment, but not interest incurred after the asset has been put to use.
As mentioned, construction loans are short-term loans, usually no longer than a year in length. On the other hand, traditional mortgages are long-term loans, with terms typically ranging from 15 ? 30 years. With a mortgage, the borrower receives the money in one lump sum.
Typically, interest paid on a loan is immediately expensed and is tax deductible but that isn't always the case. For example, construction interest expense that is incurred during the period up until the time the asset begins to produce revenue is capitalized by adding it to the cost basis of the asset.
The overarching accounting theory when accounting for these debt issuance costs is the utilization of the matching principle. This means that to properly match these costs with the new loan, the costs should be capitalized and amortized over the term of the loan.
Calculating the monthly interest payment is as simple as applying the loan's interest rate to that $20,000. If your interest rate is 6.5%, you can expect your monthly interest payment (for that month) to be $1,300.