An interest-only fixed rate loan is a mortgage in which a borrower pays only interest and nothing towards the mortgage principal. Interest-only fixed rate loans are offered by two HUD multifamily loan programs, the HUD 221(d)(4) program, and the HUD 232 program. In both cases, these loans are offered for up to 3-year periods during the construction phase of a project. Interest-only fixed rate loans are also a component of the HUD 232 loan for the construction and substantial rehabilitation of senior living properties. However, there are no interest-only periods for the HUD 223(f) loan program.

The main advantage of an interest-only fixed-rate loan is that borrowers can accurately predict their monthly costs and future expenses, allowing them to budget accordingly. This indicates that the loan will stay immune to fluctuations in the market, and borrowers might expect the same monthly payments during the life of the mortgage. Additionally, interest-only fixed-rate loans are only offered by two HUD multifamily loan programs, the HUD 221(d)(4) program, and the HUD 232 program. In both cases, these loans are offered for up to 3-year periods during the construction phase of a project.

The main disadvantage of an interest-only fixed rate loan is that when the amortization period of the loan begins, the loan 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).

Other disadvantages of interest-only loans include high interest rates, high fees, and borrowers typically having to have at least 20% equity in the initial property.

Interest-only fixed rate loans are only offered by two HUD multifamily loan programs, the HUD 221(d)(4) program, and the HUD 232 program. To be eligible for an interest-only fixed rate loan, you must meet the eligibility requirements of the specific HUD loan program you are applying for. For example, the HUD 221(d)(4) program requires that the borrower have a minimum of two years of experience in developing and owning multifamily properties, and the HUD 232 program requires that the borrower have a minimum of three years of experience in developing and owning senior living properties.

For more information on the eligibility requirements for HUD 221(d)(4) and HUD 232 loans, please visit the following links:

• HUD 221(d)(4) Program
• HUD 232 Program

The length of time it takes to get approved for an interest-only fixed rate loan depends on the loan program you are applying for. For example, with the HUD 221(d)(4) and HUD 232 loan programs, the loan approval process typically takes between 45 and 60 days. With the Freddie Mac Optigo Small Balance Loan program, the loan approval process typically takes between 30 and 45 days.

To learn more about the loan approval process for HUD multifamily construction loans, fill out the form below and a HUD lending expert will get in touch.