What is an "interest-only" loan?

An interest-only mortgage is a loan with scheduled payments that require you to pay only the interest for a specified amount of time. The amount that you owe on the loan does not go down with each payment. Once the interest-only period ends, you may have several options:

  • Paying off the loan balance all at once
  • Refinancing the mortgage loan, if refinancing is available
  • Beginning to pay off the balance in monthly payments, which are higher than the interest-only payments
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