WHAT IS AN INTEREST-ONLY LOAN?

With an interest-only loan, a borrower's payments consist only of the interest on the mortgage, not the principal, over a fixed term. As a result, these loans offer low payments during the initial interest-only term. However, at the end of this term, the borrower must pay off the principal and any additional interest in either a lump sum or in larger regular payments.

Interest-only loans allow borrowers to purchase a more expensive home than they could otherwise afford and maintain increased cash flow compared to fully amortized mortgages. However, since much larger payments are required when the interest-only period ends, borrowers should be confident that their income will increase significantly.



MORTGAGE Q&As

What is a Loan that Originated in a Portfolio?
What is the "Secondary Market"?
What Kind of Documents are Required for a Loan?
What is a Credit Check and Who Performs Them?
What Does a Lender Have to Disclose to You by Law?
What is PITI?
Why Do I Need Private Mortgage Insurance (PMI)?
Where Do I Get Private Mortgage Insurance (PMI)?
What is an Interest-Only Loan?
What are the Limits on FHA Loans?
What Is Seller Financing?
What are the Primary Institutions of Money and Mortgages?
What is the Advantage of Using a Broker for my Home Loan?

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