Interest-Only Mortgage


DEFINITION of 'Interest-Only Mortgage'

A type of mortgage in which the mortgagor is only required to pay off the interest that arises from the principal that is borrowed. Because only the interest is being paid off, the interest payments remain fairly constant throughout the term of the mortgage. However, interest-only mortgages do not last indefinitely, meaning that the mortgagor will need to pay off the principal of the loan eventually.

BREAKING DOWN 'Interest-Only Mortgage'

Interest-only mortgages can be useful for first-time home buyers because it allows young people to defer large payments until their incomes grow.

At the end of the interest-only mortgage term, the borrower has a couple of options. He or she can either renew the interest-only mortgage or repay it through standard means, such as entering into a normal mortgage and liquidating investments.

  1. Principal

    1. The amount borrowed or the amount still owed on a loan, separate ...
  2. Graduated Payment Mortgage

    A type of fixed-rate mortgage in which the payment increases ...
  3. Interest

    1. The charge for the privilege of borrowing money, typically ...
  4. Mortgagor

    An individual or company who borrows money to purchase a piece ...
  5. Default Risk

    The event in which companies or individuals will be unable to ...
  6. Mortgagee

    An entity that lends money to a borrower for the purpose of purchasing ...
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