Interest-Only Mortgage

It is a loan in which, for a set term, the borrower is only required to pay the interest on the principal balance. At the end of the interest-only term the loan may have a balloon payoff or may simply convert to a fully amortized loan for the reminder of the loan term. If the borrower exercises the interest-only option every month during the interest-only period, the payment will not include any repayment of principal. The result is that the loan balance will remain unchanged at the end of the interest-only period.