Take IO when the goal is current cash-on-cash yield , when value-add capex needs maximum cash flow, or when planned refi/sale at stabilization makes amortization wasted. Take amortizing when long-term equity build matters and current DSCR can support it without straining sizing.
What IO does for your deal
Lower debt service in the IO period. Annual debt service falls by the principal portion of amortization, typically $15K to $25K per year per $1M of loan on a 30-year am.
Higher cash-on-cash yield in the IO period. The same NOI divided by the same equity produces higher current return because debt service is lower.
Lower equity build. The loan balance doesn't decline; equity accretion comes from value appreciation, not principal paydown.
Tighter sizing test on IO. Lenders size IO loans against the IO debt service, not the amortizing debt service. The IO DSCR floor is typically the same number (e.g., 1.25x) but applied to lower debt service, so max IO loan can be lower than max amortizing loan.
When IO is the right answer
Stabilized property with defined hold horizon (3 to 7 years). The sponsor wants maximum current cash-on-cash and is comfortable not building equity through amortization.
Value-add deal where capital improvements are funded out of cash flow during the IO period, every dollar of debt service saved is a dollar available for capex.
Refi-or-sell-at-stabilization plan where amortization for the first 2 to 3 years would be wasted (the loan gets paid off at the end of stabilization regardless).
When amortizing is the right answer
Long-hold strategy (10+ years) where equity build through paydown is part of the value proposition.
Stabilized property where DSCR has plenty of room and the sponsor doesn't need maximum cash-on-cash.
Conservative sponsors who want the loan balance to fall with each payment as a hedge against value declines.
IO availability by lender category
Fannie/Freddie agency: partial IO (1 to 5 years) standard at most leverage levels; full-term IO available at lower leverage and stronger debt yield. Sizing tightens with IO.
Life co: partial IO (1 to 3 years) standard; full-term IO selectively at lower leverage.
CMBS: full-term IO available at lower leverage and stronger debt yield (typically 9.0%+ debt yield); partial IO standard at moderate leverage.
Bank perm: varies widely by bank. Often willing to do partial IO during initial term with amortization in extension period.
Bridge: almost always full-term IO. Amortization on bridge is rare.
Worked example, IO vs. amortizing trade-off
Stabilized multifamily, $1.5M trailing NOI, refi at current rates. Lender quotes both IO and amortizing options.
Amortizing 30-year: max loan $14M at 5.75% fixed, annual debt service $980K, DSCR 1.53x, cash-on-cash on $6M equity = ~8.7%.
Partial IO 3 years: max loan $13.5M at 5.75% fixed, annual IO debt service $776K (years 1 to 3), then $945K (years 4+), DSCR IO period 1.93x, cash-on-cash on $6M equity in IO period = ~12.1%.
Trade-off: the partial-IO option produces $204K/year more cash flow in years 1 to 3 (~$612K total) at the cost of $500K less initial loan size. Better for sponsors who value current cash-on-cash; worse for sponsors maximizing total proceeds.
Frequently asked questions
Does IO mean my balance never goes down?
Correct during the IO period. After IO converts to amortizing (in partial-IO structures), the balance amortizes on a recalculated schedule, typically faster than a from-the-start 30-year amortization.
Can I get IO on agency multifamily?
Yes, partial IO (1 to 5 years) is widely available; full-term IO available at lower leverage and stronger debt yield. Both Fannie and Freddie offer IO programs.
Does IO affect prepayment?
Same prepayment menu applies (yield maintenance, defeasance, declining penalty, par window) regardless of IO. The economics of prepayment may differ slightly because the higher remaining balance affects the calculation.
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1
- Treasury Constant Maturity Series (DGS5, DGS10) · Federal Reserve Bank of St. Louis (FRED) · weekly
- Financial Stability Report · Board of Governors of the Federal Reserve System · 2025-11