Interest Only Mortgages

An Interest Only Mortgage is a type of loan where the borrower is required to pay only the interest on the principal balance for a specific period. These loans can be fixed or adjustable rate mortgages and may also be available as option ARMs. Initially, this arrangement results in lower monthly payments. However, once the interest-only period concludes, the loan reverts to a fully amortizing schedule, significantly increasing the monthly payments. This type of mortgage does not facilitate equity building during the interest-only term but allows borrowers to afford more expensive homes initially, potentially refinancing before higher payments commence.