The Quick Read: Yes, in most cases. Interest-only payments with the full principal due at maturity are the standard shape of a hard money loan. Your promissory note sets the schedule, so the loan documents decide, not a general rule.
- Each monthly payment covers interest only. The principal balance stays where it was until payoff.
- On the hard money program Lendmire places files with, terms run 6-18 months, interest-only, with no prepayment penalty. All of this varies by lender, property, and experience.
- Some lenders charge interest on the whole loan. Others charge only on rehab funds you have drawn.
- The monthly payment is rarely the risk. The exit (a sale or a refinance) is.
- Nothing here is a commitment to lend, and every file is reviewed individually.
How Does Interest-Only Work Until the Balloon?
The loan works like a short rental of money. You pay the lender’s cost of carrying the balance each month. At the end of the term, you hand back the full amount.
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.
Here is the monthly payment in plain words. Take one year of interest on the outstanding balance, then divide by twelve. That is the payment. It stays flat as long as the balance stays flat.
Picture a six-month note, fully funded at closing:
| Month | What you pay | Balance owed after |
|---|---|---|
| 1 | Interest only | Unchanged |
| 2 through 5 | Same interest-only payment | Unchanged |
| 6 (maturity) | Interest plus the full principal | Zero, if paid off |
That last payment is the balloon. It is much larger than the others because it carries the entire loan.
Two details change the picture. First, when interest is charged on the full commitment, the payment is flat from month one. Second, when interest is charged only on funds drawn, the payment starts small and climbs as each rehab draw is released. Ask which one your lender uses before you build a holding-cost budget.
Why Do Hard Money Lenders Write It This Way?
The structure matches the plan. A flip or a bridge project usually produces no meaningful income during the work. A payment that carries no principal keeps your monthly cash outlay as low as the structure allows.
It also fits the exit. The lender expects to be repaid from a sale or a refinance, not from years of principal paydown. The collateral and the plan carry the underwriting, which is why this is asset-based lending. The property, the project, and the exit matter more than your paycheck.
That logic cuts both ways. A low payment hides the fact that you are not building any cushion. Every dollar you owe at closing is a dollar you owe at maturity.
What Is the Balloon, Exactly?
A balloon is a lump-sum payment at the end of the loan that is much bigger than the regular payments. On an interest-only note, it is simply the unpaid principal plus whatever final interest is due.
Federal rule text gives a precise yardstick. Under the CFPB’s rule text on balloon payments, a balloon is any payment more than two times a regular periodic payment, and regular payments can be interest only. So an interest-only note with a lump sum at the end fits the definition cleanly.
Two things worth knowing:
- The balloon is not a surprise fee. It is written into the note. If you read the maturity clause, you have read the balloon.
- Paying interest never reduces it. Twelve months of on-time interest leaves you owing the same principal you started with.
Some lenders also state the payoff as principal plus one more monthly payment. That is one lender’s convention, not a universal rule. Your payoff letter is the document that counts.
Key Terms Defined
Interest-only payment: a payment that covers only the interest due, with nothing going toward principal.
Balloon payment: a one-time payment at maturity that is far larger than the regular payments.
Maturity date: the date the full remaining balance comes due under the note.
Amortization: paying down principal gradually through scheduled payments until the balance reaches zero.
Interest reserve: a portion of the loan set aside at closing to pay the monthly interest for you.
Rehab holdback: renovation money the lender releases in draws as work is completed.
Loan-to-cost: the loan amount as a percentage of the total project cost, including purchase and rehab.
After-repair value (ARV): the estimated value of the property once the work is finished.
When Isn’t It Interest-Only?
Interest-only is the norm, but it is not a law of nature. A hard money lender can write the note almost any way the deal supports. Three variations come up often.
- Amortizing with a balloon. Some notes calculate payments as if the loan ran on a long schedule, such as 30 years, but still come due in a short term. You pay down some principal, and a balloon remains.
- Reserved or accrued interest. A lender may hold back an interest reserve at closing. A few let interest build up and collect it all at payoff, though that usually takes a strong deal.
- Draw-based interest. As covered above, interest may run only on money you have drawn.
| Structure | Monthly payment | Principal paid down | Balloon at maturity |
|---|---|---|---|
| Interest-only | Lowest, flat | None | Full original balance |
| Amortizing with balloon | Higher | Some | Reduced balance |
| Reserved or accrued interest | Little or none from you | None | Balance plus interest |
Balloon and interest-only are also separate ideas. A “30 due in 15” mortgage has a balloon but amortizes the whole way. Don’t assume one feature implies the other.
Here is the practical move. Ask for the payment structure in writing before you commit. Terms differ across lenders, and the lender that offers the lowest monthly payment may charge you in other places.
Can You Pay Extra Principal Before Maturity?
Usually yes, if the note allows it, and it can help. Any principal you pay down cuts the balance that interest runs on. It also shrinks the balloon.
The catch is the prepayment clause. Some lenders charge a penalty or require a minimum amount of interest regardless of when you pay off. On the program Lendmire places files with, there is no prepayment penalty, though that varies by lender, property, and experience. Read the clause before you assume early payoff is free.
Paying principal early is also a cash decision. Money you send to the lender is money you can’t spend on the next draw or the next deal. Many investors keep their cash for the rehab and let the exit retire the loan.
What Does This Look Like on Lendmire’s Hard Money Program?
Lendmire is a broker. It arranges hard money and private money loans through select lenders in its wholesale network, in 41 markets including Washington, D.C. Here is the shape of the program for business-purpose, non-owner-occupied investment property. Every figure is typical, varies by lender, property, and experience, and is subject to lender guidelines.
- Term and payments: 6-18 months, interest-only, no prepayment penalty. There are no multi-year options on the current program. Investors who need a longer runway refinance into long-term rental financing.
- Fix-and-flip leverage: 93% of project cost at 5 or more completed projects, 90% of project cost at 2 or more, and 85% of project cost with fewer than 2. Every tier is capped at 75% of after-repair value.
- Bridge purchases without rehab: up to 80% of purchase price.
- Refinance: cash-out and rate-and-term refinances on investment property go up to 65% of value.
- Rehab funding: up to 100% of the rehab budget, released in draws against completed work. That is a budget figure, not a purchase loan-to-value.
- Loan size: up to $5,000,000, with larger loans by exception.
- Credit: a 620 minimum score, with additional conditions below 660. First-time investors qualify at the lower leverage tiers.
- Property: non-owner-occupied residential, 1-4 units, with ground-up construction to 10 units.
The top leverage tier is reserved for experienced investors. There is no true 100% purchase program. Underwriting stays asset-based, so the property, the plan, and the exit carry the file.
Does the Note Control All of This?
For investment property, mostly yes. Hard money loans on investment property are business-purpose loans, and they are reviewed differently from a standard owner-occupied mortgage. Federal consumer-credit rules generally exempt credit extended primarily for a business purpose, as laid out in the eCFR text of 12 CFR 1026.3. Whether a particular loan falls inside that exemption depends on its facts, so treat this as context, not a promise.
The practical takeaway is simple. The terms you negotiate are the terms you live with, so read the maturity, extension, and default-interest clauses closely. A loan that raises its cost after maturity, or sets a steep default charge, is built to create urgency.
What If You Can’t Pay the Balloon at Maturity?
You have four exits. Which one works depends on the property, the lender, and how early you start.
| Exit | What it needs | What can derail it |
|---|---|---|
| Sell | A buyer at a price above your payoff and costs | Weak comps, slow buyer pool |
| Refinance | A new lender and an appraisal that supports the loan | Appraisal comes in short |
| Pay from other funds | Cash outside the project | Cash tied up elsewhere |
| Extend | Lender agreement, usually for a fee | Lender says no |
Extensions are negotiated, not owed. Some lenders write extension language into the note at closing, which helps. Others don’t, and a lender that sees a stalled project may decline.
If none of the four works, the loan goes into default. Default can mean added charges, a higher interest cost, and ultimately foreclosure. Don’t wait for the last month to find out.
Start your exit work well before maturity. List the property or line up the refinance while the project is still finishing, not after. A delayed or over-budget project squeezes your margin, and the appraisal still has to land.
The Rental Exit: Refinance Into DSCR Financing
Many investors refinance out of hard money into long-term DSCR financing once the property is stabilized and rented, and Lendmire brokers that path. A DSCR loan is a long-term investment-property loan. It qualifies primarily on property-level rental income covering the payment, subject to lender guidelines.
Size the exit backward. The new loan equals the leverage cap times the appraised value. Your break-even appraisal is your hard money payoff plus exit costs, divided by that cap. If the appraisal falls below that number, you bring cash to closing.
Across the wholesale network, a cash-out refinance on an investment property tops out around 75% LTV, and about six months of seasoning is the common expectation. Coverage of 1.00 is where select programs start, and stronger ratios open better terms. Most programs want a credit score around 660. Reserves vary by lender, leverage, and loan size, and commonly run around six months of PITIA.
Remember that DSCR compares rent to the payment only. Clearing 1.00 does not mean positive cash flow, since repairs, vacancy, and management sit outside the calculation.
For more on the full structure, see the complete DSCR loans guide. Lendmire’s comparison of an interest-only DSCR loan and a hard money loan for a cash-out covers the tradeoffs side by side.
When Is Interest-Only a Bad Fit?
It works best when three things are true. The exit is clear, you hold cash reserves, and the project is well scoped. It works worst when any of them is shaky.
- No real exit. “I may rent it or sell it” is a wish, not a plan. Lenders ask for a specific exit for a reason.
- Thin cash. Interest is due every month whether or not the property produces rent. A stalled project still owes the full payment.
- A tight margin. If a modest delay or a lower appraisal wipes out your profit, the structure leaves no room.
- Owner-occupied use. Hard money here is business-purpose, non-owner-occupied lending. A consumer-purpose loan is a different legal situation, and a different conversation.
One honest toss-up deserves mention. A flat, low payment feels safer than an amortizing one. But the amortizing note, which forces some paydown, can leave a smaller balloon to refinance. For a rental you plan to keep, that smaller number can matter more than the monthly savings.
Frequently Asked Questions
Is the payment the same every month?
On a fully funded note, usually yes. The balance stays flat, so the payment does too. On a draw-based loan where interest runs only on funds released, the payment grows as each draw goes out. Ask your lender which method applies before you budget.
Can I switch an interest-only loan to amortizing?
Sometimes, but it is negotiated. It is easier to ask for the structure you want before closing than to modify the note later. Some lenders offer notes that amortize on a longer schedule and still balloon. Most keep to interest-only because the loan is meant to be short.
What happens if I can’t pay at maturity?
You can sell, refinance, pay from other funds, or ask for an extension. Extensions are negotiated, usually for a fee, and not guaranteed. If none works, the loan can go into default, which can lead to higher costs and foreclosure. Check the default clause in your note.
Does a bigger loan-to-cost tier change my interest payment?
Yes, because interest runs on the loan balance. Higher leverage means a bigger balance and a bigger monthly payment. On Lendmire’s program, the top tier of 93% of project cost goes to investors with 5 or more completed projects, and all tiers cap at 75% of after-repair value. These figures vary by lender, property, and experience.
Do I need experience to get hard money?
Not always. A 620 minimum credit score applies on the program Lendmire places files with, with additional conditions below 660. Underwriting is asset-based, so the property, plan, and exit matter most. Eligibility is subject to lender guidelines.
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. Reach the team at 828-256-2183 or request a quote.
The strongest hard money deals start with the exit and work backward, so pick the takeout before you pick the loan.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage built around DSCR investor lending, with programs available in 41 markets, including Washington, D.C. DSCR lenders commonly evaluate rental-income coverage instead of personal income paperwork — a practical fit for LLC-owned and multi-property investors. Terms vary by lender, property, leverage, and program. 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. CFPB – Regulation Z § 1026.37
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Hard Money Loan Requirements to Exit Seller Financing or Subject-to · How a Lender Reads a Seller-Carried Note on a Hard Money Loan · Hard Money Draw Process Checks for a Remote Out-of-State Investor
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.