Hard money loans are a type of financing that is secured by real estate and is typically used as a short-term loan for flipping houses or rehabilitating properties. These loans are often characterized by higher interest rates and shorter repayment periods than traditional mortgages.
Some hard money lenders may offer interest-only loans, which require the borrower to pay only the interest on the loan for a period of time before the principal balance becomes due. Interest-only loans can be useful for borrowers who need to conserve cash flow in the short term, as the monthly payments are typically lower than for a traditional loan with a fully amortizing payment schedule.
It's important to note that interest-only loans can be more risky than traditional loans, as the borrower is not paying down the principal balance of the loan. This means that the borrower may end up paying more in total interest over the life of the loan. It's always a good idea to carefully consider the terms of an interest-only loan and compare it with other financing options before committing to a hard money loan.
Not all hard money loans are interest-only loans. Some hard money lenders may offer fully amortizing loans, which require the borrower to pay both the interest and a portion of the principal balance each month. It's important to carefully review the terms of the loan and understand the repayment schedule before committing to a loan.