The Quick Read: Most hard money loans pay interest only and end in a balloon, so a structure that pays down principal has to be requested and negotiated with a private lender. Partial amortization is the realistic version of that request. A rental you plan to hold usually fits long-term DSCR financing better.
- The default: Interest-only with a lump sum at maturity is the standard hard money structure across the lenders we work with.
- The Lendmire program: The hard money program Lendmire brokers runs 6-18 months, interest-only, with no prepayment penalty. Terms vary by lender, property, and experience.
- The realistic ask: Payments sized on a long schedule with a balloon at maturity, or voluntary principal paydowns.
- The better fit for holds: A DSCR loan amortizes on a 30-year fixed spine and qualifies primarily on property-level rental income covering the payment, subject to lender guidelines.
- The first step: Decide whether you are flipping or holding, because that choice answers most of the structure question.
What Does “Not Interest-Only” Actually Mean?
A loan that is not interest-only has some principal paid down before maturity. Hard money has four versions of this, and they behave very differently.
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.
Fully amortizing means the payments retire the whole balance by the end of the term. On a 6-18 month loan, that makes every payment far larger than an interest-only payment. Partially amortizing means payments are sized as if the loan ran on a long schedule, but the loan matures early and the remaining balance comes due. Voluntary paydowns keep the contract interest-only but let you send extra principal when you choose. Step-downs require scheduled principal reductions at set points, such as after a rehab milestone.
A balloon is the unpaid balance due at maturity. Raisin’s balloon explainer describes interest-only, partially amortizing, and long-schedule balloons as variants of one family. That framing is accurate. Even a partially amortizing hard money loan still ends with a large payoff.
| Structure | Monthly payment | Balance at maturity | Best fit |
|---|---|---|---|
| Interest-only | Lowest | Full amount funded | Flips, short rehabs |
| Partial amortization | Moderate | Most of the balance | Stabilized, leased property |
| Full amortization | Highest | Zero | Rare; short-term stress |
| Voluntary paydown | Lowest required | Whatever you reduce | Borrower with spare cash |
| Step-downs | Rises at each set point | Reduced by scheduled cuts | Rehab with clear milestones |
Why Hard Money Defaults to Interest-Only
Hard money is a short bridge, and the lender sizes it on the property, the business plan, and the exit rather than on a long payment schedule. A loan that lasts a year or so gains little from amortization, because the principal barely moves. Interest-only also keeps the carrying cost low while a rehab produces no rent.
Private lenders have wide freedom to structure payments, so no rule forces interest-only. It is simply the contract most of them write. Across the lenders in our wholesale network, amortizing hard money is a negotiated exception, not a menu option.
Draws make it harder still. Rehab money is released in stages against completed work, so the balance keeps changing. Setting a fixed amortizing payment on a loan that is still funding is awkward, and most lenders skip it on rehabs.
How Underwriting Treats an Amortizing Request
Hard money underwriting is asset-based. The lender looks at the property, your plan for it, and how the loan gets repaid. Credit still matters, and a 620 minimum score is typical on the program Lendmire brokers, with added conditions below 660. Terms always vary by lender, property, and experience.
When you ask for principal payments, the lender adds a question: can this property or this borrower carry the larger payment during the term? The answer depends on the lender, and the usual approach is a review of whether the property’s cash flow supports the added payment. A leased, stabilized property passes that test far more easily than a gutted one.
Leverage shapes the conversation too. Fix-and-flip leverage on the program we broker runs 85% of project cost with fewer than two completed projects, 90% of project cost at 2+ completed, and 93% of project cost at 5+ completed. Every tier is capped at 75% of after-repair value. Bridge purchases without rehab reach up to 80% of purchase price, and refinances go up to 65% of value. All of this varies by lender, property, and experience, and nothing here is a commitment to lend.
A lender weighing a higher payment against high leverage will often decline the amortizing request. A lender looking at a leased property at moderate leverage may agree to it.
Key Terms Defined
Amortization: the process of paying a loan down through scheduled payments that include principal.
Balloon payment: the lump sum of unpaid principal due when the loan matures.
Loan-to-cost: the loan amount as a share of total project cost, used on hard money instead of a plain loan-to-value ratio.
Debt service coverage ratio (DSCR): monthly rent divided by the full monthly housing obligation (principal, interest, taxes, insurance, and any HOA dues).
Seasoning: the waiting period a lender wants after a purchase or lease-up before it will refinance the property.
How to Get One: Step by Step
1. Pick your structure. Decide whether you want partial amortization, a scheduled step-down, or just the freedom to pay principal early. Voluntary paydowns are the easiest to get, because they cost the lender nothing.
2. Show a stabilized property. Amortizing debt belongs on a rentable property. Bring a lease, rent history, or a credible rent estimate.
3. Ask in the term sheet, not on the phone. Request principal-and-interest payments on a stated schedule and a stated maturity. A verbal yes means nothing until the note says it.
4. Confirm the balloon. The note should show the maturity date, the balloon amount, any extension terms, and prepayment terms. The program we broker carries no prepayment penalty, but lenders differ.
5. Test the payment before you commit. Run your rent against the larger payment. If the property cannot carry it during the term, you have the wrong structure.
6. Plan the exit. A balloon is repaid by a sale or a refinance. If neither is ready, the options are an extension, usually for a fee, or default.
Lendmire’s piece Can You Structure a Hard Money Loan Interest-Only With a Balloon? covers the interest-only side of that exit in more detail.
What the Federal Rules Say About Balloons
Hard money to investors is business-purpose credit. These loans are designed for non-owner-occupied investment properties, so they are reviewed differently from a standard owner-occupied mortgage.
That distinction explains why no rule forces interest-only. It also explains why amortization is a contract choice. The CFPB’s Regulation Z balloon definition treats a payment of more than two times the regular periodic payment as a balloon. The Federal Reserve’s copy of the staff commentary gives a useful example: a 5-year term with payments based on a 20-year schedule is a balloon loan, not a demand loan. So amortizing with a balloon is a recognized structure, and a private lender is free to write it.
Where the General Rule Breaks
Several edge cases bend the interest-only default.
- Niche collateral. Fully amortizing hard money shows up occasionally in one-off deals where institutional financing is scarce. Those are exceptions and do not describe the market.
- Interest reserves and deferred interest. Some lenders fund an interest reserve or defer interest instead of collecting monthly payments. That eases cash flow, but it is not amortization, and the balance never shrinks.
- Negative amortization. This is the opposite of what you want, because the balance grows when payments fall short of the interest owed. Check that a flexible-payment term sheet does not hide it.
- Collateral limits. The program we broker covers non-owner-occupied residential property of 1-4 units, with ground-up construction up to 10 units. Commercial, land, and owner-occupied properties are not on that sheet.
- Draw-funded rehabs. A loan still funding draws almost never amortizes, because the balance is not settled yet.
Another lender may price an exception differently, and some will simply say no.
Why Rental Holds Usually Belong in DSCR
If your real goal is to hold a rental and pay down principal each month, hard money is the wrong tool. Pick the loan built for it. A DSCR loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines, and it amortizes by design. Lendmire’s complete DSCR loans guide walks through the full program.
Here is what the typical DSCR file looks like across our wholesale network, subject to lender guidelines:
- Term: The spine is the 30-year fixed. Select lenders add 40-year terms and interest-only periods, and ARM structures exist for investors who want them. Above $2,500,000, the network generally holds to 30-year fixed.
- Purchase leverage: Most files land at 75%-80% LTV on an investment-property purchase, which means 20%-25% down. Select high-leverage programs reach 85% LTV with roughly a 700+ score.
- Cash-out: Around 75% LTV on a standard-rental cash-out refinance, with about 6 months of seasoning as the common expectation.
- Coverage: 1.00 is where many select programs start. A separate select-lender path takes coverage below 1.00 with leverage and terms adjusted. Stronger ratios open better leverage and pricing.
- Credit: A 620 floor exists in parts of the network, most programs want around 660, and 700+ unlocks the strongest tiers.
- Reserves: Commonly around 6 months of PITIA. Conservative rate-term files at modest leverage under $1,500,000 can see reserves waived, and larger loans typically step up to about 9 months.
One caution matters here. Clearing 1.00 coverage does not mean positive cash flow. The DSCR compares rent to PITIA only, so repairs, vacancy, management, utilities, and capex all sit outside the calculation.
Many investors finish a rehab on hard money, lease the property, and refinance into long-term DSCR financing once it is stabilized. Lendmire brokers that path. A larger down payment on the refinance can lift the ratio, but it never erases leverage caps, credit floors, or reserve rules. The strongest files clear both tests: enough equity and enough rental coverage.
Run the Exit Before You Buy
Model your coverage on the permanent loan, not the bridge. Say you plan to buy a duplex, rehab it, and lease it. Start from the bridge maturity date and subtract the rehab, lease-up, seasoning, and appraisal time. If that leaves a thin cushion, a longer-runway plan is safer than squeezing a payment-heavy structure into a short term.
Then run the leased rent against a fully amortizing obligation. If the rent clears the full payment with room to spare, the refinance is realistic, and a rent that barely clears it argues for lower leverage on the take-out. If it falls short, a select lender in the network may still look at coverage below 1.00 with leverage and terms adjusted. Either way, you know the answer before the bridge clock starts.
An interest-only hard money payment has no bearing on that later DSCR math. The permanent lender looks at the new loan, not the old one.
Which Path Fits Your Deal?
| Your situation | Likely structure |
|---|---|
| Flip, rehab in progress | Interest-only, exit by sale |
| Leased property, short hold | Negotiated partial amortization |
| Long-term rental hold | DSCR loan, fully amortizing |
| Wants lower balloon risk | Voluntary paydowns, early refinance |
For the other half of the exit question, Lendmire’s piece Can You Pay Interest Only on a Hard Money Loan Until the Balloon? explains how the payoff date drives the whole structure.
Frequently Asked Questions
Can I make principal payments on an interest-only hard money loan?
Usually, yes. Because the program we broker carries no prepayment penalty, extra principal does not trigger a fee. Check the note on any other lender, since some charge for early payoff. A voluntary paydown lowers your balloon and your interest cost without forcing a larger required payment.
Is a fully amortized hard money loan possible?
Rarely. It exists in occasional one-off deals, but over a 6-18 month term the payment becomes very large. Most investors who want amortization are better served by a DSCR loan or a refinance into one.
What is a balloon payment?
It is the unpaid balance due when the loan matures. On an interest-only loan, it equals the full amount funded. On a partially amortizing loan, it is somewhat smaller. You repay it by selling, refinancing, or negotiating an extension.
Does amortizing cost less overall?
It can lower total interest because the balance shrinks, but it raises the monthly payment during a stretch when a rehab produces no rent. For a short bridge, the interest savings are usually small compared with the cash-flow strain.
Is this the same as a no-interest loan?
No. This topic is about repayment structure only. Every hard money loan charges interest, and the question is simply whether principal is paid down along the way.
Next Step
If you are buying, rehabbing, or refinancing an investment property 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. As a broker arranging financing through select lenders in its wholesale network across 41 markets, including Washington, D.C., Lendmire can also line up the long-term DSCR take-out before you commit to the bridge.
About Lendmire
As a non-QM mortgage broker (NMLS# 2371349), Lendmire facilitates DSCR investor loans across 41 markets, including Washington, D.C. DSCR eligibility is generally reviewed around property-level rental income instead of personal income documentation, subject to lender guidelines, serving LLC-structured portfolios and self-employed borrowers who don’t fit conventional boxes. A two-time Scotsman Guide Top Mortgage Workplace (2025, 2026).
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References
1. Raisin: What Is a Balloon Payment
2. CFPB Regulation Z, §1026.37
3. Federal Reserve: CFPB Official Staff Commentary on Regulation Z
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How ADU Builders Draw Funds on a Hard Money Construction Loan · How to Replace Seller Financing With a Hard Money Loan on a First Flip · Hard Money Maximum Loan Amount Requirements for a Flip
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.