Interest-Only Loan

Most consumers believe that an interest-only loan is in itself a type of loan, but it is actually any type of loan that has an interest-only feature attached for the purpose of keeping payments lower at the front-end of the loan. Typically, lenders will set a specific period of time for the interest-only feature, generally five or 10 years. Once this feature expires, the borrower will then pay interest as well as the principal on their mortgage. Some interest-only loans prohibit the borrower from refinancing for specific periods of time without a high penalty while others have an option that allow the borrower to revert to a full principal and interest loan at any time during the life of the interest-only option. When considering an interest-only loan, borrowers should carefully review the full terms before they accept the interest-only feature.