IO Period (Interest-Only Period)

Also called: Interest-Only Period

An interest-only (IO) period is a stretch of a loan term, often the first 1 to 3 years, during which the borrower pays only interest and no principal. It temporarily lowers debt service, which can boost early cash flow and DSCR.

Example

A $6,500,000 loan at 7% costs $455,000 a year during an interest-only period, versus $518,936 once it starts amortizing. On $650,000 of NOI, that's the difference between a 1.43x DSCR and a 1.25x DSCR.