Interest Reserve
What is an Interest Reserve?
An interest reserve is a portion of a loan that is set aside by the lender to cover interest payments during the loan term. This feature is commonly used in construction, fix and flip, or development loans, where the property being financed does not generate income during the project period. By including an interest reserve, borrowers can focus on completing their projects without worrying about making monthly interest payments.
How Interest Reserves Work
When a loan includes an interest reserve, the lender calculates the total anticipated interest for the loan term and adds that amount to the loan balance. The interest is then paid directly from the reserve each month, ensuring uninterrupted payments. Key aspects include:
Benefits of an Interest Reserve
Interest reserves provide several advantages, particularly for real estate investors:
Challenges of Interest Reserves
Despite their benefits, interest reserves have potential downsides:
Interest Reserves with LYNK Capital
At LYNK Capital, we offer loans with interest reserve options tailored to the unique needs of real estate investors and developers. Our flexible solutions help ensure uninterrupted project progress and financial stability. Contact us today to learn more about how an interest reserve can benefit your next project.