Interest-Only Mortgages: How They Work and Who They're For
An interest-only mortgage lets a borrower pay only the interest charge for an initial period — commonly 5 to 10 years — with no portion of the payment going toward the principal balance during that time. It's a distinct structure from a standard amortizing loan, and understanding what it does and doesn't do matters before assuming it's simply "a cheaper mortgage." How the payment structure works During the interest-only period, the monthly payment covers only the interest accruing on the loan — the principal balance stays exactly where it started, unchanged. Once the interest-only period ends, the loan converts to a standard amortizing payment, recalculated to pay off the full remaining balance over whatever time is left in the original term, which usually results in a significantly higher payment than either the interest-only phase or what a standard loan's payment would have been from the start. Why the payment jumps so much after the interest-only per...