What is Interest-Only Loan?
An interest-only loan lets the borrower pay only the interest for a set early period, so the balance does not go down during that time. Payments are lower at first but jump later when principal repayment begins. These loans carry more risk and are less common for typical buyers.
Example: A borrower pays interest only for the first 10 years, keeping payments low, but the monthly amount rises sharply once principal payments kick in.