An interest-only mortgage allows the borrower to make scheduled payments covering only the interest for a specified period. During this period, the scheduled payments do not reduce the principal balance.
When the interest-only period ends, the borrower generally begins making principal-and-interest payments based on the remaining loan balance and loan term. This can result in a significant payment increase.
Interest-only mortgages are specialized loan products and may not be appropriate for every borrower. Borrowers should not assume they will be able to sell the property or refinance before the interest-only period ends.
Program availability, qualifying requirements, interest-only periods, repayment terms, rates, and costs vary by lender and borrower. Our team can review the available options and explain how the payments may change over time.