DEFINITION of 'InterestOnly ARM'
An adjustablerate mortgage (ARM) with an initial interestonly payment period. During the interestonly period, only the calculated interest must be paid; no principal must be repaid. The length of the interestonly period varies with each mortgage type. After the interestonly period, the mortgage must amortize so that the mortgage will be paid off by the end of its original term. This means that monthly payments must increase substantially after the initial interestonly period lapses.
BREAKING DOWN 'InterestOnly ARM'
Interestonly ARMs carry a great deal of paymentshock risk. Not only do the payments have the potential to increase because of an increasing fully indexed interest rate, but the expiration of the interestonly payment means that payments will increase when it becomes a fully amortizing payment. Additionally, because the mortgage's principal balance is not reduced during the interestonly period, the rate at which home equity increases, or decreases, is entirely dependent upon homeprice appreciation. Most borrowers intend to refinance an interestonly ARM before the interestonly period ends, however a reduction in home equity can make this difficult.

InterestOnly Mortgage
A type of mortgage in which the mortgagor is only required to ... 
Payment Option ARM
A monthly adjusting adjustablerate mortgage (ARM) which allows ... 
Payment Shock
The risk that a loan's scheduled future periodic payments may ... 
Flexible Payment ARM
A type of adjustablerate mortgage that allows the borrower to ... 
Standing Mortgage
In contrast with a normal mortgage, standing mortgages are a ... 
Stripped MBS
A trust comprised of mortgagebacked securities which are split ...

Home & Auto
InterestOnly ARMs
There are plenty of ways to end up with a bad mortgage. The risks of these five should make every homebuyer think twice before signing. 
Credit & Loans
Would You Save with an InterestOnly Mortgage?
Sophisticated borrowers might want to consider one of these loans to keep their initial payments low, but they need to fully understand the risks. 
Home & Auto
Choose Your Monthly Mortgage Payments
Exotic mortgages allow you to decide how much to pay. Find out how much they really cost. 
Home & Auto
InterestOnly Mortgages
There are plenty of ways to end up with a bad mortgage. The risks of these five should make every homebuyer think twice before signing. 
Home & Auto
Conclusion
There are plenty of ways to end up with a bad mortgage. The risks of these five should make every homebuyer think twice before signing. 
Home & Auto
InterestOnly Loans
Interestonly loans are a type of ARM in which the borrower is responsible for only paying mortgage interest and not principal during the introductory period until the loan reverts to a fixed, ... 
Options & Futures
Make A RiskBased Mortgage Decision
Find out how to choose which mortgage style is right for you. 
Credit & Loans
How Interest Rates Work On A Mortgage
A stepbystep explanation of the interest calculations, mortgage types, and how the loan is eventually "retired" – which means paid off. 
Home & Auto
Fixed Rate Loan
Another thing to consider when shopping for a mortgage is whether to obtain a fixedrate or floatingrate mortgage. 
Retirement
Retiring On Investment Interest: Can It Be Done?
Spending investment interest in retirement can be a viable strategy, but it won't work for everyone.

Is there any time I would want to have a zeroprincipal mortgage?
As a general rule, entering a zero principal mortgage, or what is commonly referred to as an "interestonly mortgage", is ... Read Answer >> 
What are the different types of subprime mortgages?
Clarify your understanding of subprime mortgages. Learn about the different types, how they work and when they might be beneficial. Read Answer >> 
Why does the majority of my mortgage payment start out as interest and gradually ...
When you make a mortgage payment, the amount paid is a combination of an interest charge and principal repayment. Over the ... Read Answer >> 
What is the difference between a 2/28 and a 3/27 ARM?
An adjustable rate mortgage (ARM) is a type of mortgage that has a fixed interest rate for a certain time period at the beginning ... Read Answer >> 
What are the pros and cons of a simpleinterest mortgage?
Learn the difference between a simple interest mortgage and a standard mortgage, along with their relative advantages and ... Read Answer >> 
Is an adjustable rate mortgage (ARM) safe?
Learn why an adjustable rate mortgage (ARM) can be a safe option as long as the borrower is familiar with the underlying ... Read Answer >>