Interest Only Mortgages

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This type of loan may be a fixed or an adjustable rate mortgage, in which your monthly payment is only paying for that month's accrued interest. If you only make this interest-only payment, the balance of your mortgage will remain the same for as long as you continue to do this, since the principal is not being paid down. These loans will normally have a fixed term for which interest-only payments may be made, after which your new payment will be calculated by amortizing your remaining loan balance over the remaining life of your loan.

This fixed term may be 2, 3, 5, 7 or 10 years, which is the maximum amount of time that you can pay this interest-only payment. The life of these loans can be anywhere from 10 to 30 years, depending on the borrower’s choice of payment and choice in repayment term of their mortgage. 

These loans are generally considered by individuals who are concerned with keeping a lower initial monthly payment during the term of their loan, or who prefer the flexibility of having this lower interst-only "option" should they choose to make this payment on any given month, understanding that at a predetermined time they will be required to begin making the higher fully amortized payment of interest plus principal in order to repay the loan in full.