Interest-only payments are a common feature of bridge loans. Instead of paying down the loan balance, investors make monthly payments based only on the interest charged. This keeps carrying costs lower during the short-term hold and gives investors more flexibility while preparing for a sale or refinance.
What “Interest-Only” Means #
With an interest-only bridge loan:
- Monthly payments cover interest only, not principal
- The loan balance stays the same for the entire term
- The full payoff happens when you sell or refinance
This structure reduces monthly expenses and helps keep cash flow predictable during short transitions.
Why Bridge Loans Use Interest-Only Payments #
Bridge loans are temporary tools, so lenders design them to support short-term needs:
- Lower monthly costs while preparing the exit
- Easier to hold the property during light improvements or rent stabilization
- More liquidity available for other deals
- Simple, predictable payment structure
Because the loan isn’t meant to be held long-term, paying down principal isn’t necessary.
How Payments Are Calculated #
Interest-only payments are based on:
- Loan amount
- Interest rate
- Payment frequency (usually monthly)
Example:
A $400,000 bridge loan at 10% interest = $3,333/month (before taxes/insurance).
The balance stays $400,000 until payoff.
What Happens at Payoff #
At the end of the term (or sooner), investors exit the loan by:
- Selling the property
- Refinancing into DSCR or long-term financing
- Paying off the balance using other capital sources
Because no principal is paid during the term, the payoff amount is typically the full loan amount plus any remaining interest.
When Interest-Only Payments Are Most Helpful #
Interest-only payments are especially useful when:
- You’re improving the property before resale
- You’re stabilizing rental income before a DSCR refinance
- You want to keep monthly costs low
- You need time to prepare long-term financing
- You’re using a bridge loan for liquidity or back-to-back acquisitions
The lower payment structure supports momentum and flexibility; key advantages of bridge financing.
Summary #
Interest-only payments keep monthly expenses low during a short-term hold, making it easier for investors to manage cash flow while preparing for a sale or refinancing into permanent debt. The loan balance stays the same throughout the term and is paid off at exit, which is exactly how bridge loans are designed to function.