The Quick Read: You repay the full balance in one lump sum at maturity. Interest-only means the principal never shrank, so the amount due equals what was funded plus accrued interest and fees. Most investors get there by selling, by refinancing into long-term rental financing, or by bringing outside cash. Starting the exit well before the due date is what separates a clean payoff from a scramble.
- Interest-only loans end in a balloon: the whole principal is due at once.
- Four exits exist: sell, refinance, pay with other funds, or extend.
- For a rental, the usual refinance is a DSCR loan, which qualifies primarily on property-level rental income covering the payment, subject to lender guidelines.
- A written payoff statement, not your memory, sets the number to wire.
- Line up the takeout lender before the note gets close to maturity.
What You Owe at Maturity
You owe the amount funded, plus accrued interest, plus any fees in the note. That is it. No principal was paid along the way, so there is nothing to subtract.
DSCR Cash-Out Calculator
Run the cash-out numbers in your market
Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 22, 2026
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As of Oct 22, 2026 · General Freddie Mac market benchmark, not a Lendmire loan offer. Property value, balance, taxes, and insurance are editable estimates. Maximum loan-to-value varies by lender, program, property type, and seasoning. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
This catches people off guard because the monthly carry feels light. Light payments are the whole appeal of interest-only. The tradeoff is that everything rides on one event.
Hard money terms on our program run 6 to 18 months, interest-only, with no prepayment penalty. That varies by lender, property, and experience, and nothing here is a commitment to lend. Always read your own note, because the maturity date, extension language, and exit fees live there.
Key Terms Defined
Balloon payment: the lump sum of remaining principal due when the loan matures.
Payoff statement: a written figure from your lender showing exactly what it takes to clear the loan on a given date.
Per diem: the daily interest that keeps accruing after the statement date.
Seasoning: the ownership time a new lender wants before it will size a loan on appraised value.
Payoff-only refinance: a new loan that covers the old balance and costs and returns no cash to you.
Cash-out refinance: a new loan that returns cash to you after paying off the old one.
DSCR: debt service coverage ratio, meaning the rent divided by the full monthly housing obligation (principal, interest, taxes, insurance, and any HOA dues).
Your Four Exit Routes
Every payoff comes down to four moves: sell, refinance, pay with other funds, or extend. Extending only buys time. The other three actually retire the debt.
| Exit | Best for | Must be true | Main risk |
|---|---|---|---|
| Sell | Flips, stalled rentals | Buyer closes before maturity | Sale falls through |
| Refinance (DSCR) | Rentals you’re keeping | Seasoning, value, rent all clear | Low appraisal |
| Other funds | Small shortfalls | Cash is liquid and ready | Drains reserves |
| Extend | Near-finished projects | Loan is current, exit is credible | Fees, lender discretion |
Extensions are discretionary. Lenders tend to grant them on loans that are performing and have a believable plan. They cost money, and no lender owes you one.
Here is the catch with refinancing: don’t assume your hard money lender will also be your takeout. Line up an independent one.
Why the DSCR Refinance Is the Usual Rental Exit
For a property you plan to hold, the long-term loan that pays off hard money is typically a DSCR loan. Many investors refinance out of hard money into long-term DSCR financing once the property is stabilized, and Lendmire brokers that path through its hard money exit refinance program. The complete DSCR loans guide covers the basics if the product is new to you.
Here is what the DSCR loan allows, framed as guidance rather than promise and subject to lender guidelines:
- A rate-and-term DSCR refinance, which returns no cash, can go up to 85% LTV on an investment property.
- A DSCR cash-out refinance tops out at 75% LTV on a standard rental, with about 6 months of seasoning measured from title recording.
- Minimum coverage on select DSCR programs is 1.00. Select lenders in the network also go below 1.00 with leverage and terms adjusted.
- Credit runs from a 620 floor in parts of the network, with 660 and 700+ unlocking better tiers.
- Reserves are commonly around 6 months of PITIA, stepping up to about 9 months above $1,500,000.
Compare that with the hard money side. Hard money sizes on project cost and after-repair value. On a bridge purchase without rehab it can go up to 80% of purchase price, and cash-out or rate-and-term refinances on the hard money program top out at 65% of value. The DSCR exit lender runs its own test on its own appraisal and the property’s rent. A generous advance at the start does not change that.
How the Payoff Works, Step by Step
The mechanics are simple once you see them in order.
1. Read the note. Confirm the maturity date, extension option and cost, default-rate language, exit fees, and whether interest runs on drawn funds only or the full loan. How interest is charged on drawn versus undrawn funds varies by lender.
2. Order a written payoff statement. It should show principal (including funded rehab draws), accrued interest, per diem, any fees, a valid-through date, and lien-release instructions. A payoff figure from memory is almost always low.
3. Classify the new loan. If any cash comes back to you, it is cash-out, with the lower leverage cap and a seasoning clock. If it only covers the old balance and costs, it is payoff-only.
4. Let the new lender underwrite three things: ownership time, value, and rent coverage. Seasoning typically runs from the recorded deed, not from rehab completion or a lease signing. Value comes from the new lender’s own appraisal, not your after-repair estimate. Inside the seasoning window, sizing often defaults to the lower of cost or appraisal. Coverage is measured on the new loan’s PITIA only. Your old interest-only payment never enters the math.
5. Close. The title or closing agent wires the payoff to the old lender and the old lien is released. On a cash-out, leftover proceeds go to you.
The new loan is limited by the lower of the value limit and the rent-coverage limit. A big appraisal does not rescue weak rent. A strong rent roll does not rescue a short appraisal.
Build Your Maturity-Day Number
Work the arithmetic yourself before anyone hands you a figure. Two formulas cover it.
Payoff: principal funded, plus accrued interest, plus extension or exit fees, plus per diem times the days until the wire.
Cash needed at closing: payoff plus new closing costs, minus the maximum new loan.
The maximum new loan is appraised value times the leverage cap. If the cash-needed result is positive, you bring money to the table. If it is negative on a cash-out, that is the cash you walk away with, though equity depends on rent used for lender review, reserves, and the 75% ceiling and is never guaranteed.
Run it at the low end of value, not the high end. A low appraisal turns a planned cash-out into a refinance that needs your cash.
Countdown: When to Do What
One broker’s guidance is to begin about 90 days before maturity, as Ridgestreet Capital suggests. The point is buffer for the appraisal, underwriting, and title, not a fixed schedule.
| When | Move |
|---|---|
| About 90 days out | Pick the exit. Get the takeout lender and documents lined up. |
| About 60 days out | Appraisal ordered. Ask about extension terms as a backup. |
| About 30 days out | Request the written payoff statement. Confirm title is moving. |
| Final week | Refresh the payoff figure, per diem included. Confirm the wire. |
| Maturity | Funds delivered, lien released. |
Run a backup exit in parallel. If the primary plan wobbles, the backup is what keeps you from default.
Where the General Rule Breaks
Maturity arrives before seasoning clears. Your options are an extension, a payoff-only refinance now, bringing cash, or a sale. A payoff-only loan solves the deadline. It can mean two sets of closing costs if you cash out later.
The rehab is unfinished or the unit is empty. Coverage can’t be tested without rent. Some lenders rely on market rent and others want signed leases, so ask early.
Delayed financing won’t rescue you. That is an agency exception built for cash buyers, and it waives only the waiting period. A hard money loan secured by the property is purchase financing, and the conservative reading is that it doesn’t fit. DSCR lenders also set their own seasoning.
The appraisal comes in short. Your planned cash-out can shrink or vanish, and you may owe cash to close.
Rent coverage thins out. The permanent loan is priced when the rehab finishes. A higher payment lowers coverage, which can shrink the loan. Build slack into the ratio.
You’re already past maturity. Default-rate interest and fees may be running. Run two tracks: ask for forbearance or an extension while the new application moves forward. Refinancing a loan already in formal default is harder, so contact your lender before the date, not after.
Clearing the DSCR test is also not the same as positive cash flow. Repairs, vacancy, management, utilities, and capex sit outside the calculation.
Extension, Bridge, Cash, or Sell?
Match the move to the trigger.
| Situation | Likely move |
|---|---|
| Sale stalled | Extend, or refinance if it’s a rental |
| Appraisal short | Bring cash, or pivot to a sale |
| Rehab unfinished | Request an extension |
| Not yet seasoned | Payoff-only refinance, or extend |
| Small cash shortfall | Partial paydown from other funds |
What Happens If You Miss Maturity
A balloon with no takeout can lead to default and, in the worst case, foreclosure, as the consumer explainer from Raisin notes. It also describes the refinancing risk if your finances or the market shift before the balloon comes due. Default interest and fees erode the margin quickly and add up. Foreclosure rules vary by state, so bring in a real estate attorney if you’re near that line.
Prepayment and Exit Fees
On our hard money program there is no prepayment penalty, but notes differ across the market. Check yours for minimum-interest, exit-fee, and extension language. Then check the prepayment terms on the new DSCR loan too.
Is This Regulated Like a Home Loan?
Mostly not. Investment-purpose credit is treated as business-purpose, which sits outside the consumer ability-to-repay framework. The Federal Register’s ability-to-repay rule says so directly, and CFPB exam procedures describe the business-purpose exemption. That is why maturity terms, default interest, and extensions are largely a matter of contract. Business-purpose is not the same as no rules, though, so state law still matters.
Mistakes That Sink Exits
- Assuming the refinance is certain, then discovering the appraisal or seasoning says otherwise.
- Starting too late to leave room for appraisal, underwriting, and title.
- Counting your hard money payment against coverage. Only the new loan’s PITIA counts.
- Believing seasoning starts at rehab completion or lease signing.
- Choosing a bridge term too short to outlast rehab, lease-up, and underwriting.
Tax treatment varies; consult a qualified professional.
Frequently Asked Questions
Can I pay off the loan early?
Yes, on our hard money program, where there is no prepayment penalty. Other notes may carry minimum-interest or exit-fee terms, so read yours. Ask for an updated payoff statement for the exact day you plan to wire.
Do I need a written payoff statement?
Yes. The closing agent needs a current, itemized figure with per diem and a valid-through date. A number from memory will almost always miss accrued interest or fees.
What if my appraisal comes in low?
The maximum new loan shrinks, so you may need cash at closing, or a cash-out becomes a payoff-only refinance. Run your math at the low end of value before you commit.
Can I extend if I’m not ready?
Sometimes. Extensions are discretionary, usually go to performing loans with a credible plan, and typically cost money. Ask early, and keep the refinance moving in parallel.
What if the sale falls through?
Pivot to a refinance if it’s a rental, bring cash for a small gap, or request an extension. This is why a backup exit should exist from day one.
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 the refinance path, see Lendmire’s piece Can a DSCR Refinance Pay Off a Hard Money Loan at Maturity?.
About Lendmire
A DSCR-focused mortgage broker, Lendmire (NMLS# 2371349) places investor financing across 41 markets — 40 states plus Washington, D.C. — with DSCR eligibility generally reviewed by the lender on property cash flow instead of tax returns, subject to lender guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in 2025 and 2026.
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References
2. Raisin, What is a balloon payment
3. Federal Register, ATR/QM final rule
4. CFPB TILA/Reg Z exam procedures
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 a Self-Employed Business Owner Get a Hard Money Bridge Loan? · 2-4 Unit vs. 5-to-10-Unit Hard Money Loan for a Multi-Project Flipper · Can You Borrow Enough on a Hard Money Loan to Flip a Condo?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.