The Quick Read: Yes. Interest-only is the normal payment structure on a hard money fix-and-flip loan, so you do not have to hunt for it. You pay only the interest while you rehab and sell, and the full principal comes due at maturity.
- Interest-only describes the payment, not the cost. The balance never shrinks, so the whole loan is repaid from your sale or a refinance.
- Across Lendmire’s wholesale network, flip terms typically run 6 to 18 months, interest-only, with no prepayment penalty. Terms vary by lender, property, and experience.
- Leverage is measured against project cost and capped against after-repair value (ARV). Experience sets your tier.
- Interest can accrue on the full commitment or only on funds drawn. Ask which one before you sign.
- Your exit plan carries the whole deal. Line up a sale and a backup refinance before you close.
Most first-time flippers ask the wrong question. They ask whether interest-only exists, and it does. The better question is what the interest-only structure costs you, and what happens on the day the balloon comes due.
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.
How Does an Interest-Only Flip Loan Work?
Your monthly payment covers accrued interest and nothing else. The principal balance stays flat for the whole term. At maturity, you repay the entire balance in one lump sum. That lump sum is the balloon.
The structure fits the business. A flip is a short project, and the exit is a sale. Lenders do not need to amortize a loan you plan to pay off in months. Keeping the payment to interest also leaves your cash free for materials, contractors, and the next deal.
The loan usually has two parts. One part funds the purchase. The other part is a rehab budget, released in draws as work gets finished and inspected. Up to 100% of the rehab budget can be funded in draws against completed work. That is a rehab-budget figure, not a purchase loan-to-value number.
Underwriting is asset-based. The lender studies the property, your renovation plan, and your exit more than your paycheck. You still apply. Expect to provide your investment plan, bank statements, and entity documents if an LLC holds title, subject to lender guidelines.
What Leverage Can You Expect?
Leverage depends on your track record. Across the network, fix-and-flip leverage is measured as loan-to-cost, meaning the share of total project cost the loan covers. Every tier is also capped at 75% of after-repair value.
| Experience | Loan-to-cost | Also capped at |
|---|---|---|
| Fewer than 2 completed projects | 85% of project cost | 75% of ARV |
| 2+ completed projects | 90% of project cost | 75% of ARV |
| 5+ completed projects | 93% of project cost | 75% of ARV |
The top tier is reserved for experienced investors, and all figures vary by lender, property, and experience. Credit matters too. A 620 minimum score exists, with added conditions below 660, and first-time investors qualify at the lower leverage tiers. Nothing here is a commitment to lend.
A bridge purchase with no rehab runs up to 80% of purchase price. Loan sizes go up to $5,000,000, with larger loans by exception. Properties must be non-owner-occupied, one to four units.
One myth is worth killing now. There is no true 100% purchase program. When you see “100% financing,” the real structure is a loan-to-cost tier plus rehab draws. You still bring cash to closing.
Interest on Drawn Funds or the Full Commitment?
This single term can change your carrying cost more than anything else in the loan. Some lenders charge interest on the full committed balance from day one. Investors call this the Dutch structure. Others charge interest only on money actually disbursed.
Picture a loan with a large rehab holdback. On a drawn-funds basis, your payment starts small and climbs as each draw is released. On a full-commitment basis, you pay on the undrawn rehab money too, from the first month. Same headline loan, very different carry.
Payment mechanics vary as well. Many lenders collect monthly interest payments. Some build in an interest reserve, which funds the interest out of the loan itself. A few collect no interest until payoff, and that only works on a very strong deal. Investors who discuss these loans in public forums often mention keeping a few months of interest in reserve, so budget for it either way.
Ask for the answer in writing before you commit. Your term sheet should state how interest accrues, who funds the monthly payment, and whether draws change the payment.
Interest-Only vs. Amortizing on a Flip
An amortizing loan pays down principal each month. An interest-only loan does not. The comparison looks like this.
| Factor | Interest-only | Amortizing |
|---|---|---|
| Monthly payment | Interest alone | Interest plus principal |
| Balance after 12 months | Unchanged | Lower |
| Cash left for rehab | More | Less |
| Equity built through payments | None | Some |
On a 6- to 18-month flip, the principal you would pay down is small relative to the profit at stake. Cash preserved matters more. If you run late, though, the lack of paydown costs you nothing extra in principal terms. It simply means your exit has to cover the full balance.
The payment formula is simple. Annual interest, divided by 12, gives the monthly payment on the balance that is accruing. Your lender sets the rate and the day-count convention. Both belong in the loan documents, and neither appears here because pricing lives in the quote, not the article.
How Do You Get an Interest-Only Structure?
You apply for a standard flip loan. The structure comes with it. Work through these steps.
1. Define the project. Write down purchase price, rehab budget, timeline, and your expected resale value.
2. Document your track record. List completed projects with addresses and outcomes. This sets your leverage tier.
3. Check your credit and entity. Know your score, and decide whether an LLC will hold title, subject to program terms.
4. Present the exit. Name the buyer pool or comps for a sale, and the refinance path as a backup.
5. Compare term sheets, not headlines. Line up quotes on the items below.
Questions to ask every lender:
- Does interest accrue on the full commitment or only on drawn funds?
- Is there an interest reserve, and does it reduce my cash to close?
- Is there a prepayment penalty or a minimum interest period?
- How are draws requested, inspected, and released?
- What are the extension options if the sale slips?
Lendmire is a broker, so it can place the same file with several lenders in its wholesale network and let you compare structures side by side.
What Happens at the Balloon?
The balloon is the full principal due at maturity. You repay it two ways: sell the property, or refinance into longer-term financing. A sensible plan names both before closing.
Maturity risk is real. The loans here run 6 to 18 months with no multi-year options, so a stalled project cannot simply sit.
Think of a slow month as a straight cost. Every extra month adds a month of interest and holding costs, and your profit shrinks by the same amount. Add a cushion to your timeline before you buy, and keep your contractor schedule honest.
If the flip does not sell, many investors refinance out of hard money into long-term DSCR financing once the property is stabilized and rented. Lendmire brokers that path. DSCR compares monthly rent to the full monthly housing payment, and clearing 1.00 means rent covers that payment. It does not mean positive cash flow, since repairs, vacancy, and management sit outside the ratio. Lendmire’s complete DSCR loans guide explains the mechanics.
What Does a Flip Really Cost on Interest-Only?
Total cost is more than interest. Build your holding-cost formula from every line:
- Purchase price and closing costs
- Rehab budget, including a contingency
- Monthly interest for every month you hold
- Lender fees at closing
- Insurance, utilities, and taxes during the hold
- Selling costs at the end
Interest-only keeps the monthly line small, but it never disappears. Add one more column to your spreadsheet: the cost of each extra month. If a month of delay wipes out a meaningful slice of your profit, the deal is thin.
Practitioner view on files like these: the flips that go wrong rarely fail on the interest line. They fail on a rehab that runs long, an appraisal that lands under the ARV, or a sale that takes longer than the comps suggested. Interest-only gives you room, but it does not forgive a weak plan.
When Interest-Only Is Not the Right Fit
Interest-only works against you in a few cases. A project with an uncertain exit is the biggest one. A flip with heavy structural unknowns is another. So is a market where homes sit for months.
Prepayment terms can also surprise you. Some lenders with a prepayment penalty require a minimum number of months of interest, so an early payoff still leaves interest owed at closing. The network’s flip program carries no prepayment penalty, but some individual lenders do impose one, so check each quote.
If you plan to hold the property as a rental, a flip loan is the wrong tool from the start. A DSCR loan underwrites the rental income of a stabilized property, so it suits a hold.
Is a Flip Loan a Business-Purpose Loan?
Yes. DSCR and hard money loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. The CFPB’s Regulation Z text says a creditor must decide in each case whether the transaction is primarily for an exempt purpose, and the eCFR text exempts credit extended primarily for a business, commercial, or agricultural purpose. Living in the property will take it out of this product.
Tax treatment varies; consult a qualified professional.
Key Terms Defined
Interest-only: a payment that covers accrued interest and leaves the principal unchanged.
Balloon: the full remaining principal due in one lump sum at maturity.
Loan-to-cost: the share of total project cost, purchase plus rehab, that the lender funds.
After-repair value (ARV): the estimated value of the property once renovations are finished.
Draw: a release of rehab funds after completed work is inspected.
Interest reserve: money set aside in the loan to pay interest during the term.
Frequently Asked Questions
Are all hard money loans interest-only?
Nearly all flip loans are, because the term is short and repayment comes from the exit. A few niche structures amortize. Across the network’s flip program, terms run 6 to 18 months, interest-only, subject to lender guidelines.
Can I pay down principal early?
Usually yes. The network’s flip program carries no prepayment penalty, so you can pay off the loan when the property sells. Lenders may impose minimum interest periods, so confirm the prepayment terms on each term sheet.
Do I pay interest on money I have not drawn yet?
It depends on the lender. Some charge on the full commitment from day one, and others charge only on disbursed funds. The difference changes your carrying cost, so get the accrual method in writing.
What if I cannot repay the balloon on time?
You have two options: sell the property or refinance into long-term financing. Plan the refinance before maturity, not after. If the property is stabilized as a rental, DSCR financing is a common route, with eligibility subject to lender guidelines.
Can a first-time flipper get one?
Often, yes, at the lower leverage tier of 85% of project cost, capped at 75% of ARV. A 620 minimum score exists, with added conditions below 660. Approval depends on the property, your plan, and your exit.
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. Fix-and-flip lenders across the network serve 41 markets, including Washington, D.C., though availability varies by location.
About Lendmire
As a DSCR and non-QM mortgage broker, Lendmire — NMLS# 2371349 — connects investors with wholesale lending channels across 41 markets, including Washington, D.C. The property’s rental income, not the borrower’s traditional personal-income documentation, is central to lender review, which works for self-employed operators and portfolios beyond four financed properties. 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
1. CFPB — 12 CFR 1026.3 Exempt transactions
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Do You Need Cash to Close a Hard Money Flip Loan? · Can You Get a Hard Money Loan With No Down Payment? · Can You Structure a Hard Money Loan Interest-Only With a Balloon?
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
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.