Income kicker

An income kicker is a form of conditional interest that is paid to the lender when a property's income exceeds a certain amount. The conditional interest takes the form of a share in the property's income that will be paid to the lender. Once the income exceeds the specified level, the lender's claim to a share of the income kicks in, hence the term income kicker.

An income kicker is part of a participation mortgage which allows the lender to participate in a commercial property's financial performance. A participation mortgage may allow the lender to participate in the proceeds at time of sale as well as income generated by the property above a certain threshold.

Participation mortgages help lenders and borrowers find a middle ground when other commercial loan terms may prohibit lending on a commercial property. Typically, interest rates would result in payments too high and returns too low given a property's financial performance.

The solution is for lender to forego some interest initially by lending at a lower base interest rate with the opportunity to share in the properties yield down the road when the property's financial performance can be improved and reaches a specified threshold. The borrower gains by acquiring an investment property at an initial lower rate, but must forego part of the property's return down the road.