Glossary Term

Interest-Only Payment

What is an Interest-Only Payment?

An interest-only payment is a loan repayment structure where the borrower pays only the interest accrued on the loan during a specified period, without reducing the loan's principal balance. This type of payment is common in construction, development, and bridge loans, where cash flow management is critical during the project phase.

How Interest-Only Payments Work

With interest-only payments, the borrower’s monthly obligations are significantly lower than they would be with a standard loan that includes both principal and interest. Here’s how it typically works:

Interest Calculation: Payments are based on the loan’s outstanding balance and the agreed-upon interest rate.

Principal Deferment: The principal balance remains unchanged during the interest-only period.

Transition to Full Payments: After the interest-only period ends, the borrower begins paying both principal and interest, often resulting in higher monthly payments.

Benefits of Interest-Only Payments

This payment structure offers several advantages:

Lower monthly payments during the initial phase, freeing up cash for other expenses.

Flexibility to focus on project completion or other investments before tackling principal repayment.

Predictable costs, as payments are consistent during the interest-only period.

Challenges of Interest-Only Payments

Borrowers should be aware of potential drawbacks:

Higher Long-Term Costs: Deferring principal payments can result in higher overall interest costs over the loan’s lifetime.

Payment Shock: Transitioning to full payments after the interest-only period may create financial strain if not anticipated.

Risk of Negative Equity: If the property’s value declines, the borrower may owe more than the asset is worth.

Is an Interest-Only Payment Right for You?

Interest-only payments are ideal for borrowers who need temporary payment relief during a construction or development phase and anticipate increased cash flow or refinancing opportunities in the future. they are particularly popular among real estate investors and developers.

Interest-Only Payment Loans with LYNK Capital

At LYNK Capital, we offer flexible loan structures with interest-only payment options to support your real estate projects. Our tailored solutions help you manage cash flow effectively and focus on project success. Contact us today to learn more about how interest-only payments can benefit your next venture.

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*LYNK Capital Fund, L.P. operates as LYNK Investments, LLC in the state of Texas.

LYNK Capital offers fix & flip loans, new construction loans, bridge loans, and DSCR rental loans to real estate investors.

Disclaimers: LYNK Capital makes loans solely for business purposes (and not for personal or consumer use) and is exempt from licensing in all states in which it operates. LYNK Capital Fund, L.P. does not lend on owner-occupied properties. Listed rates, terms, and conditions are offered only to qualified borrowers, may vary by loan product, deal structure, property state, or other applicable considerations, and are subject to change at any time without notice. No information on this site is intended to, or shall, create a legally binding commitment or obligation on the part of LYNK Capital Fund, L.P. and all terms are expressly subject to LYNK Capital's credit, legal, and investment approval process.

Private Lending Glossary - Interest-Only Payment