Why Fix & Flip Loans Charge Interest Only

Because the loan lives for months, not decades. Paying down principal over a short term barely moves the balance, and it would pull cash away from the renovation. So most lenders charge interest only and get repaid in full when you sell or refinance.

Amortization doesn't fit a short loan

On a 30-year mortgage, early payments chip away at principal very slowly. On a loan that lasts 6 to 18 months, building in principal payments would either do almost nothing or force large monthly payments. Neither helps anyone. The real payoff comes from the exit.

It keeps cash in the project

During a flip, the house usually earns nothing. You're paying contractors, buying materials and covering taxes, insurance and utilities. An interest-only payment keeps the monthly loan cost as low as it can be, so more of your cash goes into finishing the work on time.

How the payment is figured

The basic math is: loan balance times annual rate, divided by 12.

Example: On a $240,000 balance at an illustrative 11% annual rate, the monthly interest is about $2,200. Over a seven-month hold, that's roughly $15,400 in interest. At sale or refinance, you still owe the full $240,000.

One detail to ask about: some lenders charge interest on the full loan amount from day one, including rehab money they haven't released yet. Others charge only on what has actually been disbursed. On a big renovation budget, that difference adds up.

RSC Private Lending's Fix & Flip, New Construction and Bridge loans are 12-month, interest-only loans. On Fix & Flip and New Construction, full interest reserves can be built into the loan. An interest reserve is loan money set aside to cover interest payments during the project.

Budget for the balloon, not just the payment

Interest-only means the balance doesn't shrink. The whole principal comes due at maturity as one balloon payment. Your exit has to cover it, plus closing costs on the sale or the new loan.

When you budget, treat interest as a fixed monthly carrying cost alongside taxes, insurance and utilities. Then add a cushion of a few extra months in case the project or sale runs long.

What this means for you

Interest-only isn't a gimmick. It's a structure that matches how a flip gets paid off. Know your monthly number, know your total interest for a realistic hold, and make sure your sale or refinance clears the full balance.

Mapping carrying costs on your next flip? Send RSC Private Lending your scenario for a term sheet in 24 hours. Subject to underwriting.