What Is an Interest Only Mortgage?
Disclaimer: This website provides general mortgage and financial information for educational purposes only. It does not constitute financial, legal, or mortgage advice. Housentia is not a licensed mortgage broker, lender, or loan originator.
This content is provided for general educational purposes only and does not constitute financial, legal, or mortgage advice.
Introduction
An interest-only mortgage lets you pay only interest (no principal) for an initial period. Payments are lower at first but increase when principal payments begin. See What Is Mortgage Principal, What Is a Balloon Mortgage, and What Is Amortization.
Frequently Asked Questions
- What is an interest-only mortgage?
- An interest-only mortgage allows you to pay only interest (no principal) for an initial period (e.g., 5 or 10 years). After that, payments include principal and interest, so they increase.
- Why would someone choose interest-only?
- Lower initial payments can help with cash flow. Some borrowers expect to sell or refinance before the interest-only period ends, or expect income to rise.
- What happens when the interest-only period ends?
- Payments increase because you must start paying principal. The remaining balance is amortized over the remaining term.
- What are the risks?
- You do not build equity during the interest-only period (except through appreciation). Payment shock when the period ends. If you cannot afford the higher payment, you may need to refinance or sell.
Related Mortgage Topics
- What Is Mortgage Principal
Principal is the amount you borrow. Learn how it differs from interest, how payments reduce it, and how extra principal payments work.
- What Is a Balloon Mortgage
A balloon mortgage has a large payment due at the end. Learn how it works.
- What is Amortization
How loan principal and interest are paid over time. Understand amortization schedules.
Educational Disclaimer
This content is provided for general educational purposes only and does not constitute financial, legal, or mortgage advice.
Housentia is not a lender, mortgage broker, or loan originator.
Interest-only loans are less common. Availability varies by lender.