An interest-only mortgage loan is a loan that only requires you to make monthly interest payments for a specific period of time. You are not required to pay any principal until the period ends. This gives you the lowest monthly payment option but does not reduce the principal balance. Keep in mind that your balance will never increase either. However, you do have the option to pay more than the minimum interest-only payment and have it applied to the principal to reduce the balance.
The most common interest-only periods are five or ten years, after which, you will be required to begin paying back the principal plus interest. These loans usually have higher interest rates and costs than traditional conventional (P&I) loans.
Who Should Consider an Interest-Only Mortgage Loan?
An interest-only mortgage loan tends to be beneficial for first-time homeowners who struggle to become accustomed to such a high monthly mortgage payment. The loans might also work well for those whose income fluctuates. At times when income is higher, the individual might choose to pay on their principal.