Interest-Only Mortgage

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Nontraditional Mortgages

    A broad term describing mortgages that do not take the traditional ...
  2. Interest

    1. The charge for the privilege of borrowing money, typically ...
  3. Default Risk

    The event in which companies or individuals will be unable to ...
  4. Principal

    1. The amount borrowed or the amount still owed on a loan, separate ...
  5. Mortgagor

    An individual or company who borrows money to purchase a piece ...
  6. Mortgagee

    An entity that lends money to a borrower for the purpose of purchasing ...
Related Articles
  1. 4 Steps To Attaining A Mortgage
    Credit & Loans

    4 Steps To Attaining A Mortgage

  2. Understanding Your Mortgage
    Personal Finance

    Understanding Your Mortgage

  3. The Benefits Of Mortgage Repayment
    Home & Auto

    The Benefits Of Mortgage Repayment

  4. 5 Risky Mortgage Types To Avoid
    Home & Auto

    5 Risky Mortgage Types To Avoid

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center