The Quick Read: Yes. Interest-only payments until maturity are the standard hard money structure, so each monthly payment covers only the interest that has accrued, the principal stays untouched, and the full balance comes due as one balloon at the end, usually repaid by a sale or a refinance. Whether your note allows it is a contract question, and the note controls.
- Interest-only is a feature of the note, not a legal right. Read the maturity, extension, and default terms before you sign.
- Across the wholesale network, hard money terms typically run 6 to 18 months, interest-only, with no prepayment penalty. These vary by lender, property, and experience.
- The principal does not shrink, but the final payoff is larger than the principal: it adds accrued interest plus any exit or extension fees.
- The exit has to pass two tests: the new appraisal against the leverage cap, and rent coverage on the new loan.
- Many investors refinance out of hard money into long-term DSCR financing once the property is stabilized.
What Does “Interest Only Before the Balloon” Mean?
It means you pay interest every month and owe the full principal at maturity. The principal never shrinks, so the amount you owe at the end starts from what you drew.
What this loan actually costs to carry.
Hard money is sized against the project and priced by time. Enter the deal and see how much the program will lend, the cash required at closing, the carry while you hold it, and what is left at the exit.
Leverage tiers on the current program: 85% with fewer than 2, 90% with 2 or more, 93% with 5 or more completed projects — every tier capped at 75% of after-repair value. Loan amounts up to $5,000,000, larger by exception; terms of 6 to 18 months, interest-only, no prepayment penalty. The rehab portion funds in draws against completed work, not at closing.
Program parameters shown update from Lendmire’s centralized guideline source. Rate, points, and months are editable assumptions, not quoted terms.
Cost cap sets the loan · positive spread
Illustrative estimate only — not a quote, Loan Estimate, approval, or commitment to lend. Rate, points, and months are editable assumptions. Hard money is business-purpose financing for real estate investors, not a consumer mortgage. Leverage on the current program tops out at 93% of project cost for investors with a documented track record, capped at 75% of after-repair value, with rehab funding up to 100% of the documented budget released in draws; actual terms vary by lender, borrower experience, property, and exit. Lendmire is a mortgage broker, not a lender.
The phrase trips people up because “before the balloon” sounds like a phase. On most hard money notes it is the whole schedule. There is no later stretch where the loan converts to principal payments. Month one looks like month twelve.
The CFPB’s glossary of mortgage terms defines an interest-only loan as one whose scheduled payments cover only interest for a set period. It describes a balloon as a one-time payment, typically at the end of the term, that is larger than the regular payments. It also says a borrower who can’t pay the balloon may have to refinance, sell, or face foreclosure. That last line is the one to keep in front of you.
Hard money is asset-based and short. The Corporate Finance Institute says hard money lenders generally expect principal and interest repaid within one to five years. Within Lendmire’s network the window is tighter: 6 to 18 months, subject to lender guidelines. Anything longer than that belongs in long-term rental financing.
How Is the Payment Calculated?
Each month’s payment is the interest that accrued on the outstanding balance since the last payment. Because the balance doesn’t fall, the payment doesn’t fall either. On a rehab loan with draws, it rises.
Here is how that plays out on a file:
1. Closing. Interest starts accruing on the funded amount. On a rehab loan, only the purchase funds are out on day one.
2. Each month. You pay the interest accrued. Nothing goes to principal.
3. Each draw. Funds released against completed work raise the drawn balance. Interest accrues on that higher balance from the draw date.
4. Maturity. Principal drawn, plus accrued interest, plus any fees, comes due together.
The note decides how per diem interest is charged, so read that clause. Two files with the same headline terms can carry different payoff numbers because of it.
Lender programs differ on leverage, so the balloon size differs too. Hard money in the wholesale network is sized on project cost and after-repair value. Fix-and-flip leverage runs up to 93% of project cost for investors with 5 or more completed projects, 90% of project cost at 2 or more, and 85% with fewer than 2. Every tier is capped at 75% of after-repair value. Bridge purchases without rehab go up to 80% of purchase price. Cash-out and rate-term refinances go up to 65% of value. All of it varies by lender, property, and experience, and none of it is a commitment to lend.
Can You Pay Down Principal Early?
Often yes, because the network’s hard money terms typically carry no prepayment penalty. Paying principal down early cuts the interest accruing from then on and shrinks the balloon.
Don’t assume it, though. Your note may treat partial paydowns differently, and some lenders structure fees as a minimum earned amount. The payoff statement is where this shows up. Ask for one before sending extra principal.
Paydowns are rare on flips because cash is already tied up in the rehab. They show up more on bridge purchases where the borrower has a sale pending or a seasoned asset to draw on.
What Does the Final Payoff Include?
The final payoff is more than the principal. It adds accrued interest, any exit fee, and any extension fee. That is why the check you write at maturity is almost always larger than the number in your head.
A common misreading is that the balloon is just the principal. Principal alone is the right figure only on a flat, fully funded, interest-only loan with no added charges. On a rehab loan, the payoff starts from the amount actually drawn, not the commitment. The bridge lender’s written payoff statement lays out each piece, and it grows every month the bridge stays open.
If the new loan is larger than the payoff plus closing costs, the refinance is a cash-out file. If it is equal or smaller, it is payoff-only. That distinction drives seasoning and leverage on the exit loan.
How Does the Balloon Actually Get Paid?
Almost always by selling the property or refinancing it. Few borrowers write a check from savings.
A sale. The title company pays off the lender from proceeds. This is the flip exit.
A DSCR refinance. This is the usual exit for a rental. The new loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. DSCR is monthly rent divided by principal, interest, taxes, insurance, and any HOA dues. Investors who need a longer runway refinance out this way rather than stacking another short note.
Rolling into another private loan is a different move. It buys time, but most private loans also come due, so it often just resets the clock.
The DSCR exit has to pass two separate tests. The first is value: the new lender’s appraisal sets the number, not your after-repair estimate. The second is coverage. Select programs start at 1.00, and stronger ratios open better leverage. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. Clearing the ratio is not the same as positive cash flow, because repairs, vacancy, management, and utilities sit outside the calculation.
Cash-out refinances top out around 75% LTV on standard rentals across most of the network, and about 6 months of seasoning from the recorded title date is the common expectation. Credit floors vary: a 620 floor exists in parts of the network, most programs want around 660, and 700+ opens the strongest leverage tiers. The complete DSCR loans guide lays out how these pieces fit together.
What If the Note Matures Before Seasoning Clears?
This is the failure mode that sinks the most exits. The note can come due before the cash-out clock runs, because seasoning starts at the recorded title date, not when the rehab finishes or a tenant signs a lease.
Three options exist:
- Extension. Depends on the note and lender, and it costs money. Borrowers who have paid on time are better candidates.
- Payoff-only DSCR loan. Sized at or below the payoff, so it avoids the cash-out seasoning wait.
- Sale. Sometimes the cleanest answer if the numbers have moved.
The weighing is simple. Add the extension fee and the extra months of interest-only carry. Compare that total to the cost of a payoff-only exit, which may leave cash trapped, or a sale.
What Happens If You Can’t Pay the Balloon?
Start by talking to the lender before the maturity date, not after. A missed balloon moves the loan into default, and the default terms in your note take over. Those can include a default interest charge, late fees, and eventually foreclosure.
Two scenarios show the range:
Say an investor’s rehab finished, but the new appraisal came in under the after-repair estimate. The exit lender’s number governs, so the leverage cap leaves a gap. The investor either brings cash to closing or takes a smaller loan. Better rent evidence matters here too, because it helps the coverage side of the file even when it cannot move the appraisal.
Picture a second investor whose rent coverage lands below 1.00 on the new loan. Options include a smaller loan, more cash at closing, better lease evidence, an extension, or a select-lender path for sub-1.00 coverage with leverage and terms adjusted. Qualification stays subject to lender guidelines and property review.
Missed interest payments before maturity are their own problem. Late fees and a default rate can apply even while the balloon is months away. Automate the payment and keep a cash cushion.
Key Terms Defined
Balloon payment: A one-time payment at the end of the term that is larger than the regular payments.
Interest-only payment: A payment that covers accrued interest and does not reduce principal.
Payoff statement: The lender’s written figure for principal, accrued interest, and fees due on a given date.
Seasoning: The period of ownership, counted from the recorded title date, before a lender allows a cash-out refinance.
Per diem interest: Interest charged for each day, used when a payoff falls mid-month.
Loan-to-cost: The loan amount as a share of the project cost, used for hard money leverage.
Common Mistakes
- Assuming interest-only payments reduce what you owe. They don’t.
- Treating the balloon as just the principal. Interest, extension fees, and exit charges stack on top.
- Counting seasoning from rehab completion or lease signing instead of the recorded title.
- Sizing the bridge on your after-repair estimate instead of working backward from what the exit lender will appraise.
- Assuming an extension is automatic.
- Treating hard money as a permanent hold loan. The network’s program tops out at 18 months.
Interest-Only Hard Money vs. Long-Term DSCR Financing
| Factor | Hard Money Bridge | DSCR Refinance |
|---|---|---|
| Typical term | 6 to 18 months | 30-year fixed |
| Payment structure | Interest-only | Amortizing; IO with select lenders |
| Principal at end | Full balloon | Paid down over term |
| Sized on | Cost and after-repair value | Appraised value and rent coverage |
| Purpose | Acquire or rehab | Hold and stabilize |
Extended terms, interest-only periods, and ARM structures exist on the DSCR side through select lenders in the network. Terms vary by lender, property, and experience.
Balloon Readiness Checklist
Before maturity, confirm each item:
1. The note’s maturity date, extension terms, and default terms.
2. A current payoff statement, including per diem interest and any exit fee.
3. Recorded title date, so you know when seasoning clears.
4. An appraisal and rent schedule supporting the exit loan.
5. A lease, if one exists.
6. Title and lien release arrangements.
7. Entity records, subject to program terms for LLC-held properties.
What Do the Regulations Say?
The balloon concept has a formal definition. Under Regulation Z § 1026.37, regular periodic payments can be principal and interest, or interest only depending on the loan features, and a scheduled payment more than two times the regular periodic payment is treated as a balloon. That framework governs consumer-purpose mortgages. Hard money and DSCR loans are business-purpose investor loans, which are reviewed differently, so treat any compliance question as one for counsel.
Tax treatment varies; consult a qualified professional.
Frequently Asked Questions
Is interest-only standard on hard money loans?
Yes, it is the standard structure. Payments cover accrued interest and the principal is due at maturity. It is still a contract feature, so confirm it in your note. Lendmire’s network terms typically run 6 to 18 months, interest-only, varying by lender, property, and experience.
Can the loan convert to principal payments later?
On most hard money notes, no. The interest-only schedule runs to maturity. If you want amortization, that is what a long-term refinance provides, usually into a 30-year fixed structure.
Does interest accrue on the full amount on a rehab loan?
No. Interest accrues on funds actually drawn, so the balance and the interest rise with each release. Up to 100% of the rehab budget funds in draws against completed work. Payoff is principal drawn, plus accrued interest, plus any fees.
Can I extend if I miss the maturity date?
Sometimes. Extensions depend on the note and lender, they usually cost a fee, and they are more likely for borrowers who have paid on time. Ask well before maturity, not after.
What is the usual exit for a rental?
A refinance into long-term DSCR financing once the property is stabilized. Lendmire brokers that path through select lenders in its wholesale network across 41 markets, including Washington, D.C. Short-term rental rules can vary by city, county, HOA, and property type, so investors should confirm local rules before relying on projected rental income.
If you are buying, rehabbing or refinancing an investment property on a short timeline and want to see how the numbers work, Lendmire can help you compare hard money options based on the project, the exit plan, leverage, and your goals.
For more on how a bridge loan is structured and paid, see Lendmire’s piece Can You Structure a Hard Money Loan Interest-Only With a Balloon?.
About Lendmire
A non-QM mortgage broker (NMLS# 2371349), Lendmire arranges DSCR financing for real estate investors in 41 markets — 40 states plus Washington, D.C. Because deals are underwritten primarily on property cash flow rather than personal income documentation, the structure suits self-employed buyers and entity-owned portfolios. Lendmire places loans through wholesale investor lenders; it is not a direct lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your investment property. No commitment required.
Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
2. Corporate Finance Institute, Hard Money Loan
3. CFPB, Regulation Z § 1026.37
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Should You Use a Hard Money Loan or an Equity Partner on a Flip? · How to Cross-Collateralize Two Properties Under One Hard Money Loan · Hard Money vs Private Money for a Flip: How They Actually Compare
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.