There is a term buried in fix and flip loan pricing that costs investors real money and almost nobody asks about until they see it on a payoff: Dutch interest. Two loans can quote the same rate, the same points, and the same leverage, and still cost thousands of dollars apart over a six-month flip, entirely because one charges Dutch interest and the other does not. If you flip with borrowed rehab money, this is one of the most important pricing details on the term sheet, and it is the one most often glossed over. This guide explains Dutch versus non-Dutch interest on fix and flip loans in 2026, with the math that shows exactly how much it costs you.
Comparing two flip offers right now? Send us both term sheets with your purchase price, rehab budget, and expected timeline. We will run the carry both ways and tell you which one actually costs less on your deal. No cost, no obligation, usually back to you the same day.
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We are a Pittsburgh-based brokerage, and we place fix and flip loans for real estate investors across Pennsylvania and additional states. When we compare two offers for a client, the Dutch-interest question is one of the first things we check, because a lower headline rate with Dutch interest can quietly cost more than a slightly higher rate without it. Investors who learn to spot it stop overpaying on carry.
How rehab money is disbursed on a flip loan
Start with the mechanics, because Dutch interest only exists because of how flip loans fund the rehab. A fix and flip loan has two parts: the money toward the purchase, which funds at closing, and the money for the rehab, which is held back and released in stages as you complete work. You do the work, you request a draw, an inspector confirms the work is done, and the lender reimburses you. We cover the reimbursement side in our guide to what happens when a draw is denied or delayed. The key point is that the rehab money is not in your hands on day one. It sits with the lender and comes out piece by piece.
That raises a simple question with an expensive answer: while the rehab money is still sitting with the lender, undrawn, do you pay interest on it? The answer to that question is the difference between Dutch and non-Dutch interest.
Non-Dutch interest: you pay for what you use
Non-Dutch interest, sometimes called interest on drawn funds, means you only pay interest on the money you have actually received. On day one you have the purchase money, so you pay interest on that. As you draw rehab funds, your balance grows and your interest grows with it. The undrawn rehab money that is still sitting with the lender costs you nothing until you pull it. This is the borrower-friendly structure, because it matches your interest cost to your actual use of capital.
Dutch interest: you pay on the full amount from day one
Dutch interest means the lender charges interest on the entire loan amount, including the rehab money you have not drawn yet, from the day the loan closes. Even though that rehab money is still in the lender’s account, you are paying interest on it as if you had it in your pocket. From the lender’s perspective it guarantees a minimum yield on the whole commitment. From your perspective it means you are paying to borrow money you cannot use yet.
Some lenders soften this into a partial version, charging Dutch interest on a portion of the undrawn balance, or charging full interest after a short initial window. The term sheet language varies, which is exactly why you have to read it. We walk through decoding these documents in our guide to how to read a fix and flip loan term sheet, and the interest calculation method is one of the specific clauses to hunt for.
The math, on a real flip
Numbers make this concrete. Say you close a flip with 200,000 dollars toward the purchase and a 100,000 dollar rehab holdback, a total loan commitment of 300,000 dollars at 10 percent interest, and the project runs six months. You draw the rehab money evenly, roughly 16,700 dollars a month, so your average outstanding rehab balance over the six months is about 50,000 dollars.
Under non-Dutch interest, you pay 10 percent on the purchase balance of 200,000 dollars the whole time, which is about 10,000 dollars over six months, plus 10 percent on your average drawn rehab of 50,000 dollars, which is about 2,500 dollars. Your total interest is roughly 12,500 dollars.
Under Dutch interest, you pay 10 percent on the full 300,000 dollar commitment from day one, whether or not you have drawn the rehab. That is about 15,000 dollars over six months. The difference is 2,500 dollars on this single deal, and it grows with a bigger rehab, a longer hold, or a higher rate. On a heavy rehab where the holdback is larger than the purchase money, Dutch interest can add five thousand dollars or more to a single flip. That is the difference between a good margin and a thin one, and it never shows up in the headline rate. You can model your own carry both ways using our deal calculator as a starting point for the numbers.
Why Dutch interest exists at all
It is not a trick, even though it feels like one. Lenders set aside the full rehab commitment the day they close your loan. That capital is reserved for you and cannot be lent to anyone else, drawn or not. Dutch interest is how some lenders earn a return on the capital they have committed but you have not yet used. The trade-off is often a slightly lower headline rate, because the lender is making up yield through the Dutch structure. This is why comparing two offers on rate alone is a mistake. A 9 and a half percent loan with Dutch interest can cost more than a 10 percent loan without it, depending on how big your rehab is and how slowly you draw.
How it interacts with interest reserves
Dutch interest and interest reserves are two different things that get confused constantly. An interest reserve is money the lender holds back to cover your monthly interest payments during the rehab, so you are not writing a check every month while the property produces no income. We explain how that works in our guide to fix and flip loan interest reserves. Dutch interest is about what balance the interest is calculated on. You can have a Dutch loan with an interest reserve, or a non-Dutch loan without one. The reserve decides who writes the check each month; the Dutch or non-Dutch method decides how big that check is. If your loan is both Dutch and uses an interest reserve, the reserve gets drained faster because the interest being covered is larger, which can leave you covering interest out of pocket late in the project. We compare the reserve-versus-cash trade-off in our guide to interest reserves versus paying out of pocket.
What to ask before you sign
The question is short: is interest charged on the full loan amount or only on funds as I draw them? If the answer is the full amount, you are looking at Dutch interest, and you should price the extra carry into your deal or negotiate. Some lenders will drop the Dutch structure if you ask, especially if you have a track record. Others will not, but will trade you a lower rate for it, in which case you run the math on your specific rehab size and draw schedule to see which is actually cheaper. On a fast, light rehab where you draw quickly, Dutch interest costs little. On a slow, heavy rehab where the holdback sits for months, it costs a lot.
Also check the draw schedule itself, because how fast you can draw affects the non-Dutch math. A loan that lets you draw in three big stages costs less in non-Dutch interest than one that dribbles money out in ten small draws, because your average balance stays lower. And if you are financing through an entity, none of this changes the calculation, but make sure the interest terms are the same across every deal you run, a point we cover in our guide to fix and flip loans for LLCs and other entities.
The bottom line on Dutch versus non-Dutch interest
Dutch interest charges you on the whole loan from day one, including rehab money you have not touched. Non-Dutch interest charges you only on what you have drawn. On a typical flip the difference is a few thousand dollars, and on a heavy rehab it is more, none of which appears in the quoted rate. When you compare two flip loans, do not stop at rate and points. Ask how interest is calculated, run your actual rehab and draw schedule through both structures, and pick the one that costs less on your deal, not the one with the prettier headline number.
Want us to compare two flip offers and tell you which one actually costs less once Dutch interest is factored in? Send both term sheets along with your purchase price, rehab budget, and expected timeline through our contact page or call 412-990-2941. You can see the short-term product on our fix and flip and bridge loan page and, if you plan to hold the finished property, model the rent on our DSCR deal calculator.
FMC Capital is a licensed mortgage brokerage, NMLS #1840537. This article is for educational purposes only and is not a commitment to lend, an offer of credit, or financial advice. Interest calculation methods, rates, and draw terms vary by lender, project, borrower, and market at the time of application.