Interest-Only Bridge Payments: The Math, the Payoff and Your Cash Flow

On an interest-only bridge loan, each monthly payment covers only that month's interest. The balance you borrowed stays the same for the whole term. You repay it all at once when you sell or refinance.

How the monthly payment is calculated

Monthly interest = loan balance × annual rate ÷ 12

Example: A $350,000 bridge loan at an illustrative 10.5% rate costs about $3,060 a month in interest. After six months you've paid roughly $18,400 in interest, and you still owe $350,000.

Some lenders calculate interest on the actual number of days in each month, so payments can vary slightly. Taxes and insurance are usually separate, unless the lender collects them in escrow.

What you'll owe at payoff

Your payoff is the full principal plus any interest accrued since your last payment, plus any payoff or exit fees in your documents. Interest on mortgage-style loans is commonly paid in arrears, so a payoff mid-month often includes several days of interest. Always request a written payoff statement from the lender before closing your sale or refinance.

RSC Private Lending's bridge loans are interest-only for the full 12-month term, with no prepayment penalty if you pay off early.

Why the structure helps

• Lower monthly cost. No principal means the smallest possible required payment.
• Simple budgeting. The payment is predictable if the rate is fixed.
• Cash stays free. Money that isn't going to principal can fund repairs, leasing or reserves.

That's useful because many bridge properties earn little or no income during the term.

If the property earns rent during the bridge

Example: A small rental you're holding on a bridge loan brings in $2,500 a month. Interest is $2,200, taxes and insurance are $500. You're short $200 a month. Know that number before you close, and keep reserves to cover it until you raise rents or refinance.

Some lenders offer an interest reserve, where a portion of the loan is set aside to cover payments for a set period. It reduces your monthly outlay but increases what you borrow.

The catch

Interest-only means no equity is built through payments. Any equity gain comes from paying down the loan at exit or from the property's value rising. Your exit has to cover the full balance plus costs.

What this means for you

Know your monthly interest, your cash flow after taxes and insurance, and your estimated payoff. Put all three on one page before you sign. It keeps the bridge simple and the exit clear.

Want to see your numbers on a specific bridge deal? Send your scenario to RSC Private Lending for a term sheet in 24 hours. Subject to underwriting.