What is an Interest-Only Mortgage Loan?

The term “interest only” means just that. An interest-only mortgage is a home loan that accrues interest, which has to be paid each month. Interest-only loans can either come in the form of adjustable rate mortgages (ARMs) or fixed rate mortgages (FRMs). Adjustable rate mortgage implies that the interest rates changes over time, while a fixed rate mortgage has consistent interest rates. The other feature of an interest-only mortgage loan is the “interest-only” payment method. With an interest-only mortgage loan, you only pay the interest on the loan, minus the principal. This lasts throughout the duration of the interest-only payment plan.

Some prefer an interest-only mortgage loan because it allows them to take the money they would have paid on principal and invest it somewhere more productive. In the end, an interest-only mortgage loan can save you a good sum of money each month by not having to pay principal on the loan.