Interest-Only Mortgage
Posted on March 9, 2022

When taking out a home loan, the lower the interest rate, the better. Current interest rates are relatively low, and consumers interested in making a purchase may be interested in taking out a loan. However, many underlying options come with an interest-only mortgage.

What is meant by an Interest-Only Mortgage? In this type of mortgage, the applicants need to pay only the interest. For the first ten years of the loan, the customer will only need to pay the loan interest for that period. There are mainly two types of interest-only mortgages. They are-

● Adjustable-rate

● Fixed-rate

Fixed-rate interest-only mortgages are not readily available. Instead, most interest- only mortgages are adjustable-rates.

Working of an Interest-Only Mortgage

An interest-only mortgage works very simply for the first several years in which the interest period occurs. In this period, only the interest of the loan amount needs to be paid.

However, when the interest-only period expires, the payment will increases and are more expensive. Amortization occurs after this period, and thus the monthly payment increases as the customer has to pay both the interest and the principal now.