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What is an Interest-Only Mortgage?
Much as its name suggests, an interest-only mortgage only requires payments on the interest for the beginning of the loan.

Instead of making monthly payments, payments are scheduled on intervals (usually at five-, 10-, or 15-year intervals). Afterwards, the principal is paid on a monthly schedule that is "amortized" (payments that contain both a component of loan principle and interest).

  • advantages: [This loan is geared towards homeowners who want to enjoy a lower payment in the beginning of homeownership, but that also understand higher payments are in store for the future when the lender begins to require principle reduction along with interest payments.] It is also popular for borrowers that don't intend to own the home for a long period of time. It has also been a popular choice for borrowers who are trying to maximize earnings on fast real estate appreciation.

  • disadvantages: The disadvantage is that these loans can get in trouble if borrowers consistently make the minimum payments on negatively amortizing loans or bought a property with very little equity and the property lost value.
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