Borrowers who take out an interest-only loan pay only interest on the mortgage for a specified time period, usually five to seven years. During that time, no part of their monthly mortgage payment goes toward the loan’s principal. At the end of the loan period, the mortgage amount is exactly the same as it was originally, unless the borrower has opted to make principal payments.
Why take an interest only loan?
Interest-only mortgage are usually taken out by people who intend to stay in the home only a short time, or for those who want to buy more house than they can currently afford. The latter expects their incomes will rise considerably during the interest-only mortgage period, but that does not always happen.