What Is an Interest-Only Mortgage?
What is an interest-only mortgage? It’s a type of home loan where you start off paying only the interest for a certain time period, followed by a time where you pay back both the interest and principal.
Most interest-only home loans are adjustable-rate mortgages, or ARMs, says Scott Sheldon, a senior loan officer and consumer advocate in Sonoma County, CA.
An ARM, also known as a variable-rate mortgage, is a loan that starts out at a fixed, predetermined interest rate that’s likely lower than what you would get with a comparable fixed-rate mortgage. However, the rate adjusts after a specified initial period—usually three, five, seven, or 10 years—based on market indexes.