What Is Interest-Only Financing for Investors?
Interest-only loans keep payments low by deferring principal. Learn how they work for investors, the trade-offs, and when they make sense.
An interest-only loan lets you pay only the interest for a set period, with no principal, which keeps the monthly payment low and your cash flow high. It is common on short-term investor loans and an option on many DSCR rental loans.
How does interest-only work?
During the interest-only period, your payment covers only the interest on the balance. The principal does not amortize, so the payment is smaller than a fully amortizing loan. You repay the principal at the exit, through a sale or refinance, or when the loan converts to amortizing.
Why investors use it
- Higher cash flow on a rental, which also improves your DSCR.
- Lower carry on a flip or bridge deal, where you are holding only months.
- Flexibility to put cash toward rehab or the next deal instead of principal.
The trade-off
You are not building equity through principal paydown during the interest-only period, so you rely on appreciation or the exit to repay. For short-term deals that is ideal; for a long-term hold, weigh it against amortizing.
Frequently asked
Rates, leverage, and timelines mentioned in this guide are typical figures, subject to underwriting and market conditions. Not a commitment to lend. Nothing here is legal, tax, or investment advice.
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