When is interest paid by borrower?

I'm afraid I'm going to have to say ... it depends

Depending on the LTV, the security, the term, the asset type and borrower profile we may a) deduct some/all interest at drawdown, b) interest serviced monthly or c) payable at loan term (i.e. rolled-up). Admittedly the latter is least common. Regards, Ed.

Thanks

AB I presume is monthly?

I was linked to this thread courtesy of ilmoro who was answering a newbie question but I have to say I was rather alarmed by Ed's response to the interest question.  The vast majority of the MT loans pay monthly interest so I'm particularly interested in whether the borrower is paying that interest or whether MT is paying it on their behalf, having deducted it all up front from the capital sum.  Ed lists five things as affecting where the monthly interest comes from and certainly if the loan is to facilitate building a property that will then be sold, I can see that unless the borrower has other income they can pay the interest out of, it makes sense for MT to deduct the interest up front and drip-feed it back to the investors.  Assuming the build and sale is successful, the investors get their capital back and everyone ends up with a slice of the pie.

However another reason MT might deduct the interest up front is because they don't trust the borrower enough to cough up each month when the interest is due.  This is of great interest to investors - especially if MT later allows the borrower to renew the loan rather than repay it because investors might be much less inclined to stay in it if they were fully informed over what was going on with the interest.  On specific borrowers, I have yet to see an AE loan repay - they all seem to renew and they take out new loans fairly regularly.  I have no idea whether MT or AE are paying the interest on these loans but if it turned out to be MT, I think that would push my nervousness over its 'sell threshold' and I'd dump them in favour of something less obviously frightening.

Does anyone else have concerns about MT sometimes paying the interest rather than the borrower so we don't have any idea whether a loan is likely to go bad until it matures?

Thanks Ed.  It's reassuring to know that the borrower is paying the monthly interest on the 'vast majority' of your loans.  Your original post stated only that interest plus capital being paid at the end was unusual (which we knew) but consequently  rather implied that the other two options were if not equally common, then certainly both fairly common.  I am glad to hear this is not the case.

I don't pay very much attention to the theoretical LTV on the AE loans because at 80% it's sailing pretty close to the wind and gets worse as soon as their customer drives the asset away.  We are effectively reliant on the AE customer loans performing to get our money back and whereas I know that AE have undertaken to swap out any asset where the customer loan comes a cropper, doing so must cost them money and if it happens a lot, will affect their ability to pay back the MT loans.  Do you have any figures for what percentage of the AE customer loans go South and hence what percentage provide AE with the expected income or does AE keep this information to themselves?

I know that the knowledgeable james has said elsewhere in these pages that he rather likes the AE loans so I'm probably being unduly nervous but it would be reassuring if once in a while they paid one back rather than renewing it as it would imply their cash flow was improving.