Anyone familiar with the term Interest Reserve?
In construction loans, you account for the interest payments along the way so your not stuck making payments for non-producing properties. If the project will take 6 months to complete and starting bringing home the bacon, you’d include 6 months worth of interest payments into the loan amount. Essentially you will be financing the interest only payments just as any other construction cost. This is what an interest reserve is.
P.S.- Yes, I’ve heard the term before.
Yes, generally a feature of commercial property development. The bank makes a loan to acquire a property but also includes funds, held in reserve, to pay the interest on the loan for a certain period of time. This guarantees that the loan will perform while the developer is improving the property and it is not generating any or little cash flow. This feature increases the risk to the bank because the borrower doesn’t even have to make payments, they come right out of the interest reserve.
I dont know about "interest resserve but I do know that most banks require you to have "reserves in your bank some seasoned some not. I am going through this right now with my refi. They wanted 6 months reserves piti