What loan structure often begins as interest-only and then transitions to amortizing?

The loan structure that often begins as interest-only and then transitions to amortizing is commonly associated with senior loans. This type of financing is often provided to borrowers who are securing long-term investments. Initially, borrowers benefit from lower payments during the interest-only period, which allows for better cash flow management while they stabilize or enhance the underlying property. Following this initial phase, the loan structure transitions to a fully amortizing schedule, where the payments will include both principal and interest, ensuring that the loan is paid off by maturity.

In the case of senior loans, lenders typically favor this structure because it allows for a more manageable repayment system during the early stages of property ownership and operation. As the property generates income, the borrower can transition into amortizing payments, thus reducing the outstanding balance over time and aligning with the anticipated increased cash flow from the property. This makes senior loans attractive for real estate projects with a straightforward income generation outlook after an initial stabilization period.

Other loan types like mezzanine loans, bridge loans, and construction loans typically serve different purposes and structures. Mezzanine loans often provide additional capital but usually involve higher risk and may not feature a simple interest-only to amortizing structure. Bridge loans are generally used for short-term financing and are important for bridging