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Hard Money Repayment: IO, Extensions, and Exit
By Jason Taken · Principal, Jaken Finance Group
Hard money repayment is interest-only until payoff — model IO carry, extension fees, sale vs DSCR refi exit, and maturity timelines on 8.99%–13.5% bridge notes.
Hard money repayment is not amortization — it is interest-only carry until a defined exit. Qualified non-owner-occupied bridge files at Jaken Finance Group run 8.99%–13.5% IO during the term; permanent hold exits refinance into DSCR at 5.75%–10.5% once rent supports the asset. If you model repayment as “make monthly payments until the balance disappears,” you will mis-size reserves, miss extension deadlines, and burn spread on idle carry weeks.
This guide covers how hard money loans actually get repaid: IO mechanics, extension policy, sale payoff, DSCR refi payoff, maturity failure modes, and a worked timeline you can drop into a spreadsheet before LOI.
How hard money repayment differs from bank debt
| Factor | Hard money bridge | Bank mortgage |
|---|---|---|
| Payment type | Interest-only | Principal + interest |
| Principal reduction | None until payoff | Each payment reduces balance |
| Typical term | 6–18 months | 15–30 years |
| Payoff event | Sale or refi | Optional prepayment |
| Rate band (2026) | 8.99%–13.5% IO | Lower, amortizing |
| Underwriting focus | ARV, LTC, exit plan | DTI, W-2, occupancy |
Every IO month without sale or refi progress costs real dollars. On a $220,000 note at 10.25%, monthly IO is roughly $1,879 — four idle weeks after rehab completion burns ~$1,879 with zero ARV improvement.
What is hard money · Hard money vs conventional · Checklist for evaluating proposals.
Interest-only mechanics — what you pay each month
Hard money lenders calculate IO on the outstanding note balance as draws release:
| Draw stage | Note balance | Rate | Monthly IO |
|---|---|---|---|
| At close (purchase only) | $180,000 | 10.5% | $1,575 |
| After draw 2 (50% rehab out) | $210,000 | 10.5% | $1,838 |
| Fully drawn | $225,000 | 10.5% | $1,969 |
Key rules:
- IO does not build equity — the full principal is due at maturity.
- Draw delays reduce early IO but extend total project months.
- Default rate (often +3%–5% above contract rate) applies after maturity without extension or payoff.
- Prepayment penalty is typically none on investor bridge — confirm on term sheet.
Model carry from fully drawn balance, not purchase-only balance, or you under-reserve by $400–$600/mo on mid-size flips.
The three exit paths — sale, DSCR refi, cash-in
Exit 1 — Resale payoff (fix-and-flip)
Standard flip exit: list after certificate of occupancy, close sale, wire payoff from title proceeds.
| Milestone | Timing target |
|---|---|
| Rehab complete + CO | Month 4–6 |
| List to contract | 30–45 days |
| Close to payoff | 30–45 days |
| Total bridge months | 5–9 |
Budget ~8% sale friction — agent commission, title, transfer taxes, buyer concessions — in the pro forma before you bind bridge terms.
Fix and flip calculator · Real estate flipping with hard money.
Exit 2 — DSCR refinance (BRRRR / value-add hold)
When the asset generates rent, payoff the bridge with a DSCR permanent loan:
| Requirement | Typical threshold |
|---|---|
| Rehab status | Complete — CO or equivalent |
| Lease | Executed — not verbal |
| DSCR ratio | ≥1.0 at quoted PITIA |
| Seasoning | 6–12 months from bridge note date (lender-specific) |
| Appraisal | As-is stabilized value |
| Rate band | 5.75%–10.5% P&I |
Order the DSCR appraisal at CO — each extra bridge month after lease-up at 10%+ IO costs $1,500–$2,000 on typical note sizes with no rent improvement.
DSCR calculator · How a DSCR loan works · Hard money buy-and-hold strategy.
Exit 3 — Cash-in payoff (downside)
When ARV misses, sale stalls, or DSCR fails, sponsors pay off from:
- Liquid reserves pledged at origination
- Partial sale / wholesale assignment
- Equity partner injection
- Secondary property sale
Cash-in is the planned downside, not a failure mode — underwrite ARV −10% and +1 month carry before LOI. If the deal only works at base-case ARV with zero slippage, renegotiate purchase price or pass.
Extension policy — what happens at maturity
Most bridge lenders offer extensions rather than immediate foreclosure — but extensions are priced and documented at origination, not invented under pressure.
| Extension element | Typical range |
|---|---|
| Extension fee | 0.5%–1.5% of note balance |
| Extension length | 1–3 months per extension |
| Max extensions | 1–2 total |
| Requirements | Updated comps, scope status, exit letter |
| IO during extension | Continues at contract rate 8.99%–13.5% |
Example: $215,000 balance, 1% extension fee = $2,150 due at extension plus continued IO at ~$1,881/mo at 10.5%.
When to request an extension vs force sale
| Signal | Action |
|---|---|
| Rehab on schedule, sale marketing slow | Extension + price adjustment |
| ARV comps softened 5%–8% | Model reduced sale price; extension if spread survives |
| DSCR refi delayed — lease executed | Extension while appraisal seasons |
| Scope overrun >15% with no ARV lift | Sale or wholesale — extension rarely fixes math |
| No buyer activity after 60 DOM | Cut price before extension burns spread |
Negotiate extension terms on the term sheet before close — not at day 89 of a 90-day note.
Demystifying hard money approval · Hard money loan mistakes.
Maturity timeline — 90-day countdown discipline
Treat maturity as a project management milestone, not a surprise:
| Days to maturity | Task |
|---|---|
| 90 | Confirm exit path — sale listing date or DSCR refi application submitted |
| 60 | Updated comps in file; price adjustment if DOM > 30 |
| 45 | Title clear; payoff quote requested from lender |
| 30 | Extension decision if sale not under contract |
| 14 | Wire instructions confirmed; closing date locked |
| 0 | Payoff wired or extension executed |
Maintain weekly lender updates during marketing — lenders extend for sponsors with transparent files, not silent borrowers.
Worked example — flip sale payoff
Market: Midwest SFR, LLC vesting, non-owner-occupied.
| Line | Amount |
|---|---|
| Purchase | $168,000 |
| Rehab (scope + 12% contingency) | $41,000 |
| All-in basis | $209,000 |
| ARV (sold comps) | $272,000 |
| Hard money LTC 90% | $188,100 note |
| Rate | 10.25% IO |
| Term | 12 months |
| Sponsor cash-in | ~$20,900 + closing |
Timeline:
| Month | Event | Note balance | IO |
|---|---|---|---|
| 0 | Close | $168,000 (purchase advance) | $1,435 |
| 2 | Draw 1 | $185,000 | $1,580 |
| 4 | Draw 2 (fully drawn) | $188,100 | $1,607 |
| 5 | Listed | $188,100 | $1,607 |
| 7 | Sale under contract | $188,100 | $1,607 |
| 8 | Close — payoff wired | $0 | — |
Total IO (8 months): ~$12,400 · Points + closing: ~$5,200
Sale: $265,000 − 8% costs = $243,800 net − $209,000 basis − $17,600 carry/closing ≈ ~$17,200 pre-tax spread.
Lesson: Payoff happened at month 8 with 4 months of term remaining — unused term is fine; unused exit planning is not.
Worked example — BRRRR DSCR refi payoff
Same acquisition, but hold thesis:
| Stage | Detail |
|---|---|
| Bridge | 10.25% IO, 9 months to lease |
| Stabilized rent | $1,725/mo executed lease |
| Appraisal | $268,000 |
| DSCR refi | 75% LTV → $201,000 loan at 7.25% P&I |
| Bridge payoff | $188,100 + accrued IO |
| Cash-out | ~$8,500 after refi costs |
IO savings post-refi: Bridge $1,607/mo → DSCR P&I ~$1,371/mo — plus principal paydown begins. Each bridge month after lease without refi order costs ~$1,607 indefinitely.
Indiana hard money vs DSCR switch playbook · Scale rental portfolio with DSCR.
Default and foreclosure — what breaks repayment
Hard money is recourse business-purpose debt on non-owner-occupied collateral. Default triggers:
| Trigger | Consequence |
|---|---|
| Missed IO payment | Default rate, cure period, potential foreclosure |
| Maturity without payoff or extension | Default proceedings |
| Insurance lapse | Lender force-place or acceleration |
| Unauthorized liens | Title cloud — payoff blocked at sale |
| Material misrepresentation on ARV | Lender may freeze draws or call note |
Prevention: IO auto-pay from dedicated reserve account; calendar maturity 90 days out; keep lender updated on scope and marketing.
Jaken Finance Group finances non-owner-occupied investment property only — not primary residences.
Repayment checklist — before you close bridge
| Item | Confirm |
|---|---|
| Exit path documented | Sale pro forma or DSCR lease plan |
| IO reserve funded | 3–6 months at fully drawn balance |
| Extension terms in writing | Fee, max months, notice period |
| Maturity date on calendar | With 90/60/30-day alerts |
| Payoff wire process | Title company + lender payoff dept |
| DSCR pre-qual (if refi exit) | Seasoning, lease minimum, LTV |
| Sale cost budget | ~8% in pro forma |
| Downside model | ARV −10%, +1 month carry |
Loan process · Submit scenario · Fix and flip requirements.
Related resources
- Master fix and flip financing guide
- Understanding loan-to-cost ratios
- Bridge loans overview
- Red flags — hard money lenders
Hard Money Repayment: IO, Extensions, and Exit — next step (2026)
Permanent 5.75%–10.5% DSCR sizes on executed lease rent with investor tax and insurance in NOI — not seller bills or STR pro forma.
Submit scenario · Pre-qualify · (833) 264-7776.
Rates, terms and conditions offered only to qualified borrowers and are subject to change at any time without notice. Closing times are in business days and commence upon receipt of appraisal payment and satisfaction of borrower conditions. Closing times may be delayed due to appraiser property access . All loans are subject to full underwriting for loan approvals. Jaken Finance Group only finances non-owner occupied investment properties.
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Jaken Finance Group, 2300 Barrington Road, Suite 400, Hoffman Estates, IL 60196