The Quick Read: Yes. Interest-only is the standard repayment structure on a hard money fix and flip loan: the monthly payment covers accrued interest, the principal does not shrink, and the full balance comes due as one balloon at maturity, usually paid from the sale or a refinance.
- Interest-only payments are the norm on hard money flip loans, not a special request.
- Principal is not reduced during the term, so the whole balance depends on your exit.
- Whether interest accrues on drawn funds only or on the full loan from day one varies by lender.
- Hard money terms run short, and early payoff terms depend on the specific term sheet.
- Many investors who keep the property refinance out of hard money into long-term DSCR financing.
Everything below is how that works inside a real file. Lendmire is a broker, so the point of view here is that of someone who places these loans with lenders and sees where the term sheets differ.
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.
What Does Interest-Only Mean on a Flip Loan?
Interest-only means each monthly payment covers the interest that built up that month and nothing else. The loan balance stays flat. If you borrowed a set amount and drew nothing more, you owe that same amount on the last day of the term.
That is the opposite of a conventional amortizing mortgage, where each payment trims principal over a long schedule. Hard money has no long schedule. The loan is a short bridge, so lenders skip amortization and size the loan on the property, the plan, and the exit.
The balloon is the other half of the structure. At maturity the entire principal comes due at once. You pay it by selling the property or by refinancing into longer-term financing. The balloon generally matches the amount funded, because nothing was paid down along the way.
How Is the Payment Calculated?
The payment is the outstanding balance times the annual rate, divided by twelve. That is all of it. There is no principal component to add.
This article does not quote rates or payment dollars, and the lender’s term sheet is the only place those belong. What matters for planning is the mechanics: if the balance is flat, the payment is flat. If the balance grows as rehab money is released, the payment grows with it.
That second case is where most borrowers get surprised. The reader who heard “the payment is flat” and the reader who heard “the payment grows” are both right, depending on how the lender charges interest. That is the next section.
Drawn Balance or Full Loan: The One Variable That Changes the Carry
A hard money flip loan funds in two parts. The purchase advance funds at closing. The rehab budget sits in a lender-controlled holdback and is released in draws after inspected work, as Yieldstack’s explanation of fix and flip draw schedules describes.
Lenders then split on how they charge interest on that holdback:
- Drawn-balance interest. You pay interest only on money already released. The payment starts small and steps up with each draw.
- Full-loan (“Dutch” or “full boat”) interest. You pay interest on the whole commitment from day one, including rehab money you have not touched. The payment is flat and higher from the start.
Neither is wrong. They are different cost structures, and the draw schedule matters more than the headline number. A slow inspection cadence on a drawn-balance loan keeps early payments low but can stretch the project. A full-loan structure costs more up front but does not change as draws release.
Ask this question before you sign: does interest accrue on funds disbursed, or on the full approved amount? Then ask for a month-by-month picture of the payment under your own draw schedule.
Interest-Only vs. Amortizing: What You Still Owe at the End
| Factor | Interest-only flip loan | Amortizing mortgage |
|---|---|---|
| Monthly payment covers | Interest only | Interest plus principal |
| Principal paid during term | None | Gradual paydown |
| Balance at maturity | Full balloon | Zero at end of term |
| Exit | Sale or refinance | Hold and pay down |
The interest-only payment is lower because it skips principal. That is the benefit: the property produces no rent during the rehab, and the carry stays small. The cost is that you have built no equity through payments. Every dollar of principal is still owed at the end.
Do not confuse this with a consumer balloon mortgage. Those usually amortize on a long schedule and then balloon. A flip loan is typically pure interest-only, which is a different structure.
What Happens If the Property Has Not Sold at Maturity?
Exit risk is the real hazard on an interest-only flip loan. Because principal never falls, the whole balance rides on a sale or a refinance. Your options at maturity run like this:
1. Sell. The sale pays off the balloon and accrued interest. This is the plan.
2. Extend. Some lenders offer an extension, and extensions typically carry an added fee, per Yieldstack’s breakdown of how fix and flip loans work and what they cost. Extension terms are lender-specific.
3. Refinance. Move the balance into longer-term financing. For a property you plan to rent, that is often a DSCR loan.
4. Default. If none of those happen, the lender can pursue the collateral. Clarify Capital notes that a missed exit can end in foreclosure.
Lenders ask about the exit at the start for exactly this reason. A flip with a thin margin and no fallback is a weak file, whatever the payment structure.
Where “Always Interest-Only” Breaks Down
Interest-only is standard, but it is not universal. A few variations show up on term sheets:
- Interest reserves. Some lenders fund several months of interest from inside the loan, so you are not writing monthly checks early in the project.
- Deferred interest. A few lenders collect no monthly payment and take all interest at payoff. That only tends to work on a very strong deal.
- Minimum interest periods. Some lenders require a set period of interest even if you pay off early. Others have no such requirement. It depends on the term sheet.
- Principal paydowns. Amortizing payments are the exception and generally have to be negotiated.
On the program Lendmire brokers for hard money, terms run 6 to 18 months, interest-only, with no prepayment penalty. That is one program, and structures vary by lender, property, and experience. Not every lender in the market works that way, so read the prepayment language every time.
Does Business-Purpose Mean No Rules?
No. This is a business-purpose loan, and that shapes how it is treated. Credit extended primarily for a business, commercial, or agricultural purpose is exempt from the consumer rules in Regulation Z, per 12 CFR 1026.3 on eCFR. Credit to a non-natural person, such as an entity, is a separate exemption listed in the CFPB’s Truth in Lending summary.
That is why consumer ability-to-repay framing does not dictate the payment structure on an investor flip loan. But the purpose is a facts test. Per the CFPB’s text of section 1026.3, the creditor decides case by case whether the transaction is primarily for an exempt purpose. A loan on owner-occupied property is out of scope for this product: collateral is non-owner-occupied residential, 1 to 4 units, with ground-up construction up to 10 units.
How Hard Money Is Underwritten
The lender sizes the loan on the property and the plan, not on your paycheck. The documents that matter are the purchase contract, the contractor scope or budget, the draw schedule, and your exit plan. A debt-to-income test is usually not the gating item.
Credit still matters. On the program Lendmire places, the minimum score is 620, with additional conditions below 660. First-time investors qualify at the lower leverage tiers. Underwriting stays asset-based, meaning property, plan, and exit.
Leverage on fix and flip is tiered by documented completed projects. Typically:
- 85% of project cost with fewer than two completed projects.
- 90% of project cost at two or more.
- 93% of project cost at five or more.
Every tier is capped at 75% of after-repair value, and the rehab budget funds in draws against completed work. These are loan-to-cost figures, not purchase LTV. A lower-leverage bridge purchase with no rehab runs up to 80% of purchase price, and refinances run up to 65% of value. Loan amounts go up to $5,000,000, with larger by exception. All of this varies by lender, property, and experience, and nothing here is a commitment to lend.
Total Carry: Payment, Fees, and Delay Together
The payment is not the cost of the project. The real carry is the payment multiplied by every month the project runs, plus fees, plus any extension.
Consider an investor with a flip that is planned for the short end of a term. If permits stall or a contractor slips, interest keeps building each month while the property earns nothing. A delayed draw inspection can push work back and extend the carry. On a full-loan interest structure, every extra month costs the same as a month on schedule. On a drawn-balance structure, the early months were cheap, and the late months cost more.
Build the budget with a delay cushion. A project that only works if everything finishes on time does not work.
When Interest-Only Helps and When It Hurts
It helps when:
- The property produces no income during the rehab.
- You want to keep working capital free for the project.
- Your exit is a defined sale or a refinance with clear sizing.
It hurts when:
- The margin is thin and a delay erases it.
- You have no fallback if the sale stalls.
- You assumed a flat payment and the draws pushed it up.
From Flip Loan to Rental: The DSCR Exit
If you decide to hold the property, the balloon is retired by refinancing. Many investors move out of hard money into long-term DSCR investor loans once the property is renovated and rented, and Lendmire brokers that path. The interest-only flip payment has no bearing on the DSCR math later. The refinance is sized on the rental’s coverage, and it has to cover the balloon plus accrued interest.
On the DSCR side, coverage compares rent to the full monthly obligation. Many select programs start at 1.00, and a separate select-lender path takes coverage below 1.00 with leverage and terms adjusted. Typical purchase leverage lands at 75% to 80% LTV, and cash-out refinance tops out around 75% LTV across most of the network. Credit floors vary, with most programs wanting around 660. Clearing 1.00 is not the same as positive cash flow, since repairs, vacancy, and management sit outside the calculation. The complete DSCR loans guide covers the full program picture. For a related comparison, Lendmire’s piece Interest-Only DSCR Loan vs Hard Money Loan for a Cash-Out walks through that decision. Tax treatment varies; consult a qualified professional.
Key Terms Defined
Balloon payment: the full remaining principal due in one lump at maturity.
Holdback: the rehab money the lender keeps in escrow and releases in draws.
Draw: a release of holdback funds after the lender verifies completed work.
Interest reserve: a portion of the loan set aside to cover interest payments.
Loan-to-cost: the loan amount as a share of purchase price plus rehab budget.
After-repair value (ARV): the estimated value of the property once renovations are done.
Mistakes to Avoid
- Assuming the payment stays flat when the lender charges drawn-balance interest.
- Skipping the question about whether interest accrues on undrawn rehab funds.
- Ignoring a minimum interest period and then paying off early.
- Treating the interest-only payment as the project’s total cost.
- Planning an exit with no backup if the sale takes longer than expected.
- Forgetting that extensions usually cost extra.
First-time flippers hit these most.
Frequently Asked Questions
Is the payment on a hard money flip loan always interest-only?
Almost always, but not every term sheet. Interest-only with a balloon is the standard structure. A few lenders defer interest to payoff or fund an interest reserve, and amortizing payments are rare unless negotiated. Read the repayment section of the term sheet to confirm.
Does the payment go up as I draw rehab money?
It can. If the lender charges interest on drawn funds only, the payment steps up with each draw. If the lender charges on the full commitment from day one, the payment is flat from the start. Ask which applies and request a month-by-month schedule.
Can I pay off early without paying interest for the full term?
It depends on the prepayment terms. Some lenders require a minimum interest period even on early payoff, and others do not. The program Lendmire brokers carries no prepayment penalty, though that varies by lender, property, and experience.
What if I cannot sell before the loan matures?
You can extend, refinance, or sell at a lower price, and extensions typically carry a fee. Terms on the Lendmire-brokered program run 6 to 18 months, so build the schedule with room to spare.
Can I refinance a flip loan into a DSCR loan?
Yes, if the property qualifies as a rental and the numbers work. The DSCR loan is sized on rental coverage and must pay off the balloon plus accrued interest. Eligibility depends on lender guidelines, credit, and property review.
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. Reach the team at 828-256-2183 or request a quote.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage focused on DSCR investor financing, helping arrange programs through wholesale and investor-lending channels in 41 markets, including Washington, D.C. DSCR loans are evaluated by the lender on property cash flow rather than personal income, subject to lender guidelines, supporting LLC closings and accommodating investors with four or more financed properties. Scotsman Guide Top Mortgage Workplace in both 2025 and 2026.
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References
1. Yieldstack, fix and flip draw schedules
2. Yieldstack, how fix and flip loans work and what they cost
5. CFPB, Truth in Lending summary
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Use a Hard Money Loan to Buy Out Siblings or a Partner? · Hard Money Overrun Documentation for a BRRRR Rehab Into a DSCR Loan · Can a DSCR Refinance Close Before Hard Money Maturity on a Long Rehab?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.