Fix-and-flip interest depends on the balance being charged, the rate, day-count method and loan agreement. Some structures charge on funds disbursed; others may charge on a larger committed amount. Many short-term loans have interest-only payments with principal due at payoff. Confirm the actual calculation before comparing two rates.
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Is Interest Charged on the Rehab Holdback?
Ask whether undrawn renovation funds generate interest and when an approved draw begins accruing charges. Two loans with the same nominal rate can have different carrying costs if they use different balance definitions.
Also ask about minimum interest, prepaid interest and any interest reserve. Money reserved from loan proceeds to pay interest is not free financing; it changes the cash available and how payments are funded.
How Can I Estimate the Monthly Cost?
A Simplified Interest-Only Comparison
At a hypothetical 12% annual rate, $200,000 × 12% ÷ 12 is $2,000 per month. If interest is charged on $240,000 instead, the estimate becomes $2,400. The $400 difference comes from the balance, not the rate. Actual daily accrual and payment amounts follow the note.
Add taxes, insurance, utilities and other holding costs. A property without tenants still has bills while work, inspections and a sale are pending.
What if the Project Takes Longer?
- Estimate the cost of another month of ownership.
- Check maturity and any extension provisions.
- Include extension fees or rate changes if applicable.
- Confirm the payoff process and per-diem charges.
With $2,000 monthly interest and $700 of other carrying costs, a two-month delay adds about $5,400 before any extension charge. That illustrative sensitivity belongs in the project budget. A faster planned sale is helpful, but the deal should not depend on every step happening at its optimistic date.
Educational information, not a loan offer. Availability and terms depend on the program, property or business, and borrower qualifications. Legal and tax questions should be reviewed with your advisers.