An interest-only loan is a type of loan in which the borrower only pays the interest, not the principal, for a specific amount of time. This period is typically laid out in the loan agreement. After the interest-only period of the loan ends, the loan becomes a typical, amortizing loan, in which the borrower contributes to both the interest and the principal of the loan with each payment.

Interest-only loans can be beneficial for borrowers who need to conserve cash flow, as the payments are lower than a traditional amortizing loan. However, there are risks associated with interest-only loans, such as the borrower having to pay a large lump sum at the end of the interest-only period.

The advantages of an interest-only loan are that it conserves cash flow in the short term and monthly payments are lower than if you were paying both principal and interest.

The drawbacks of an interest-only loan are that when the amortization period of the loan begins, payments get significantly larger than if it had been amortizing from the start. Additionally, since a borrower won't have built up any equity in their property during the interest-only period, if property values go down, they could easily find themselves underwater on their mortgage (owing more than the property is worth).

Many lenders offer interest-only loans for a variety of commercial real estate properties, including construction loans, bridge loans, mezzanine loans, and agency and government-backed loans such as HUD, Fannie Mae®, or Freddie Mac®. Specifically, Freddie Mac® Fixed-Rate Conventional Loans, Freddie Mac Senior Housing Loans, and Fannie Mae Reduced Occupancy Affordable Rehab Loans are all eligible for interest-only payments.

The qualifications for an interest-only loan in commercial real estate vary depending on the lender and the type of loan. Generally, lenders will look at the borrower's credit score, income, and the value of the property being financed. Additionally, lenders may require a down payment, a minimum loan amount, and a maximum loan-to-value ratio.

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Interest rates for an interest-only loan in commercial real estate vary depending on the lender and the borrower's creditworthiness. Generally, interest-only loans have higher interest rates than traditional amortizing loans. The interest rate for an interest-only loan can range from 4.5% to 12%, depending on the lender and the borrower's creditworthiness.

The repayment terms for an interest-only loan in commercial real estate depend on the loan agreement. Generally, the borrower pays only the interest for a set period of time, and then the loan becomes a typical, amortizing loan, in which the borrower contributes to both the interest and the principal of the loan with each payment.

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