What Is an Interest-Only Loan?
An interest-only (IO) loan allows you to pay only the interest portion of the loan for a set period — typically 3 to 10 years. During this time, you're not paying down the principal balance, which means lower monthly payments.
After the IO period ends, the loan converts to a fully amortizing payment (principal + interest), and your monthly payment increases.
Why Investors Choose Interest-Only
1. Maximize Short-Term Cash Flow
By eliminating the principal portion of the payment, you free up cash flow that can be deployed elsewhere — into new acquisitions, renovations, or reserves.
2. Bridge to Value-Add
If you're stabilizing a property (completing renovations, leasing up units), interest-only payments reduce your carry cost while the property isn't generating full income.
3. Strategic Leverage
Some investors use IO loans as a deliberate strategy to maximize leverage and returns, planning to refinance or sell before the IO period ends.
The Tradeoff
Interest-only loans have a clear tradeoff:
- Lower payments now — but no equity buildup during the IO period
- Higher payments later — when the loan converts to full amortization
- Total interest cost — typically higher over the life of the loan
When IO Makes Sense
✅ Value-add properties in the stabilization phase
✅ BRRRR deals where you plan to refinance within a few years
✅ Cash flow optimization when deploying capital into new deals
✅ Short-term holds where you'll sell before the IO period ends
When IO Doesn't Make Sense
❌ Long-term buy-and-hold with no exit plan
❌ Properties that barely cash flow even with IO payments
❌ Borrowers uncomfortable with the payment increase at conversion
Available Structures
Interest-only is available as a feature on several loan types:
- DSCR Loans with IO period
- Bridge and Fix-and-flip loans (typically IO by default)
- Conventional investment loans with IO option
- Portfolio loans with IO terms
Next Step
Talk to an advisor to determine if an interest-only structure improves your deal, or explore our loan programs for available options.