An interest-only period is a portion of the loan term during which the borrower pays only interest, with no principal amortization . Standard on bridge debt for the entire term. Available on perm debt , agency, life-company, CMBS , usually for the first 1 to 5 years in exchange for a lower DSCR test or a small spread bump.
Why does IO matter to the borrower?
IO frees up cash flow during lease-up, value-add, or any phase where NOI is ramping. On a $20 million loan at 6.5%, interest-only debt service is about $108,300 a month. A 30-year amortizing payment at the same rate is about $126,400. Full interest-only frees about $18,100 a month, meaningful capital that can fund TI, LCs, or distributions.
What is the tradeoff on perm debt?
Lenders typically size IO loans at lower max proceeds. A 65% LTV deal with full term IO might size at 60% LTV after the lender applies a haircut. Some lenders give partial IO at full proceeds; others trade IO for a slight spread bump. The right tradeoff depends on whether cash flow or proceeds is the binding constraint.
Does IO ever come for free?
On agency multifamily with a healthy debt yield (typically 8.5%+), full term IO is often available at the same proceeds as a fully amortizing loan. The agency program views the strong debt yield as risk-equivalent to amortization. On weaker debt-yield deals, IO costs proceeds or basis points.
Sources
- Multifamily Market Commentary · Fannie Mae Economic & Strategic Research · 2026-Q1
- Multifamily Research and Outlook · Freddie Mac Multifamily · 2026-Q1