The Quick Read: Hard money lenders do not pick a balloon; they size the loan from project cost and after-repair value, and on an interest-only note the balloon is that funded principal plus any accrued interest, extension fees, and exit costs still owed at payoff, so the real test is whether a long-term refinance can repay it. The investor never chooses the balloon directly. It falls out of the loan amount and the term. For a rental you plan to keep, the sizing question is really a takeout question.
- The balloon on an interest-only note is roughly the amount funded, plus whatever has accrued and been added at payoff.
- Lenders take the lower of a cost-based limit and a value-based limit when setting the loan.
- The exit lender runs its own appraisal and its own rent test, and neither one cares what the bridge lender thought.
- Terms run 6 to 18 months on the hard money program Lendmire brokers, so the refinance clock starts early.
- Sizing the bridge backward from the takeout is what keeps a rental from landing in a cash-in refinance.
What Is the Balloon on a Hard Money Loan?
The balloon is the lump sum due when the term ends. Payments during the term cover interest only, so the principal never shrinks. Whatever was funded is still owed at maturity.
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.
That is why a balloon on this kind of note sits close to the original loan amount. It is not a payment sized to be comfortable. It is a deadline, and the borrower plans to meet it with a refinance or a sale.
It can also be built differently. Some lenders partially amortize, which leaves a smaller balloon. The hard money program Lendmire brokers is interest-only with no prepayment penalty, and terms typically run 6 to 18 months, varying by lender, property, and experience. It is business-purpose lending for non-owner-occupied residential property of 1 to 4 units. This is not a commitment to lend.
How Is the Loan Amount Set, Step by Step?
Lenders move through the same chain on almost every file. The balloon is just the last link.
1. Cost basis. The lender starts with the purchase price plus the rehab budget.
2. Cost-based limit. It applies a loan-to-cost percentage, tiered by how many projects the borrower has completed.
3. Value-based limit. It caps the loan at a share of after-repair value, which is set by an appraisal, comparable sales, or a broker price opinion.
4. The lower of the two. Whichever limit is smaller becomes the loan.
5. Draws. Rehab money is held back and released against completed work, so interest accrues on the drawn balance only.
6. Balloon. On an interest-only note, the funded principal is the balloon.
Across the network, the typical ceilings look like this. All of them vary by lender, property, and experience.
| Transaction | Typical ceiling |
|---|---|
| Fix-and-flip, 5+ completed projects | 93% of project cost |
| Fix-and-flip, 2+ completed projects | 90% of project cost |
| Fix-and-flip, fewer than 2 | 85% of project cost |
| All flip tiers | Capped at 75% of after-repair value |
| Bridge purchase, no rehab | Up to 80% of purchase price |
| Cash-out or rate-term refinance | Up to 65% of value |
| Rehab budget | Up to 100%, released in draws |
The 100% figure applies to the rehab budget only. It is not a purchase loan-to-value. There is no true 100% purchase program, and the top cost tier is reserved for experienced investors.
Loans run up to $5,000,000, with larger amounts by exception. A 620 credit score is the minimum, with added conditions below 660. Underwriting stays asset-based, meaning it looks at the property, the plan, and the exit. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
What Does the Balloon Actually Include?
The balloon is more than the number on the note. Investors who plan around principal alone tend to come up short at payoff.
- Funded principal. This includes purchase money and every rehab draw released.
- Accrued interest. Depending on how the note is set up, unpaid interest may be added at payoff.
- Extension fees. If the term needs to be extended, the fee is paid at extension or added to the payoff.
- Exit costs. These are the payoff-related charges that come due when the note is retired.
Held-back rehab funds also change the math. YieldStack’s breakdown of how points and break-even interact shows why the draw schedule matters when you compare the cost of a short hold against a longer one.
Payoff statements also expire. Ask for a fresh one close to the maturity date, because the figure on an old statement will be off.
Why the Takeout Loan Sets the Real Ceiling
The balloon has to fit under the loan that replaces it. That is the binding constraint, and it is where files fail.
The exit lender orders its own appraisal. As a market source’s summary of the BRRRR method explains, the refinance requires a new appraisal that weighs comparables and the improvements made. Your after-repair estimate does not set the takeout. The new appraiser does.
Then the exit lender applies two tests, and the loan is the lower of the two. The first is a value limit. The second is a rent-coverage limit.
On most DSCR files in the network, a cash-out refinance on a standard rental tops out around 75% LTV, and about 6 months of seasoning is the common expectation. A rate-term refinance at modest leverage often has more room, subject to lender guidelines. Run the scenario this way.
Say a bridge purchase is funded at 80% of the purchase price with no rehab. Six months later the property appraises at roughly the purchase price. The takeout tops out near 75% of that value. The balloon is 80% of price plus accrued interest and fees, so the gap is at least five points of value before costs. The investor covers it with cash at the refinance.
Now size the bridge differently. A bridge that is a lower share of expected value leaves room under the takeout. If the work genuinely lifts the appraisal, a higher value may support a larger takeout, depending on comps and underwriter review. Do not count on it.
The rent test works the same way. DSCR compares monthly rent to the full monthly obligation, which is principal, interest, taxes, insurance, and any association dues. 1.00 is where many select programs start, and stronger ratios open better terms and leverage. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted.
Clearing 1.00 does not mean the property cash-flows. Repairs, vacancy, management, utilities, and capital spending sit outside the calculation.
A larger down payment can lift the ratio by lowering the monthly obligation. It does not erase leverage caps, credit floors, reserve rules, or property eligibility. The strongest exits clear both tests: enough equity and enough rent.
The wholesale network’s DSCR programs typically want a score around 660, though a 620 floor exists in parts of the network. A 700+ score unlocks the strongest leverage tiers. Reserves vary, and about 6 months of PITIA is a common figure. Many investors refinance out of hard money into long-term DSCR financing once the property is stabilized, and Lendmire brokers that path. Lendmire’s complete DSCR loans guide walks through the long-term side in full.
Interest-Only Versus Partial Amortization
Not every balloon is the same size. The structure of the note decides whether the balloon equals the loan or falls short of it.
| Feature | Interest-only note | Partially amortizing note |
|---|---|---|
| Principal during term | Unchanged | Slowly reduced |
| Balloon vs. loan | About equal | Smaller |
| Monthly carry | Interest only | Higher |
| Fit for a rehab | Strong | Weaker |
The hard money program Lendmire brokers is interest-only. A bank or seller-financed balloon can behave differently, with longer terms and a longer amortization schedule. Do not carry the expectations from one product over to the other. The program here does not offer multi-year structures. Investors who need more runway refinance into long-term rental financing.
Where the General Rule Breaks
Most files follow the chain above. A few do not.
- Unstabilized property. If the unit is vacant or half-renovated at maturity, the exit lender has little rent to test. The takeout can stall even when the value is fine.
- Low appraisal. A short appraisal shrinks the takeout. The investor brings cash to close the gap, or asks for an extension.
- Rent comes in light. The rent test caps the loan below the value test. That is the case where sub-1.00 coverage through select lenders, with adjusted leverage and terms, may come into play.
- Extension assumed, not arranged. Extensions are discretionary and cost fees. Negotiate the terms before closing.
- The bridge lender as takeout. Do not assume the same lender will refinance you into a long-term loan. Programs change, and each file is underwritten individually.
- Seller-financed balloons. The purchase price has to leave room for the carrying cost and the refinance costs.
- Missed maturity. Default can lead to foreclosure, though that is usually a last resort for a lender.
- Multiple properties. Sizing is per property, so one weak appraisal can hold up a portfolio payoff.
For a closer look at the loan terms themselves, see Lendmire’s piece Hard Money Balloon Payment Terms for a Buy and Hold Rental.
Key Terms Defined
Balloon: the lump sum owed when the loan term ends.
Loan-to-cost: the share of purchase price plus rehab budget that the lender funds.
After-repair value (ARV): the property’s estimated value once the work is done, set by an appraisal or comparable sales.
Takeout: the long-term loan that repays the short-term loan.
Seasoning: how long the borrower has held the property before a cash-out refinance.
Holdback: rehab money held by the lender and released in draws against completed work.
Coverage (DSCR): monthly rent divided by the full monthly obligation.
What to Check Before You Close
Work backward from the exit. A short list does most of the job.
- Estimate the takeout using the lower of the value limit and the rent limit.
- Add accrued interest, extension fees, and exit costs to the balloon, not just principal.
- Pick a term with room for rehab, lease-up, and seasoning.
- Start the refinance well before maturity.
- Keep cash in reserve for an appraisal that lands short.
- Keep clear records. Tax treatment varies; consult a qualified professional.
Next Step
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. Lendmire is a broker arranging financing through select lenders in its wholesale network, with programs across 41 markets, including Washington, D.C. Nothing here is a commitment to lend.
Frequently Asked Questions
Is the balloon the same as the loan amount?
On an interest-only note it is close. The principal is untouched, so the balloon is the funded amount plus anything accrued or added at payoff. A partially amortizing note leaves a smaller balloon.
Who decides the size of the balloon?
The lender sets the loan from cost and value, and the term and extensions set what accrues on top. The borrower influences the balloon by choosing the project and the leverage tier, not by choosing a number.
What if the takeout appraises low?
The new loan shrinks, and the investor has to cover the gap with cash, a partial paydown, or an extension. Sizing the bridge with some cushion under the expected takeout is the cheaper fix.
How early should the refinance start?
Start well before maturity. With terms of 6 to 18 months and about 6 months of seasoning common on a cash-out refinance, the takeout work usually begins soon after the rehab is done.
Can I pay the balloon off early?
Yes. The hard money program Lendmire brokers has no prepayment penalty, though terms vary by lender, property, and experience.
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.
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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. YieldStack – Can You Negotiate Points on a Hard Money Loan
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 Get a Hard Money Flip Loan Approved Online? · Hard Money Interest-Only Payment Terms Before the Balloon Payoff · Hard Money Loan vs Flip Loan Documentation for Investors
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.