What is interest-only mortgage?

An interest-only mortgage in California is a loan where the borrower pays only the interest on the loan for a certain amount of time, typically 5-7 years. During this time period, the borrower does not make payments towards the loan principal, only the interest. The interest rate for an interest-only mortgage is usually slightly higher than a traditional loan. At the end of the interest-only period, the borrower then begins making payments towards both the interest and loan principal. This means the borrower will pay an increased payment amount than they initially did during the interest-only period. The payment increase is due to the interest rate remaining the same while the loan balance is reduced with each payment. Interest-only mortgages are most commonly used when borrowers don’t have enough income to qualify for a traditional mortgage and need a lower payment amount initially. It is important for borrowers to understand that if they choose an interest-only mortgage, the payments can go up significantly at the end of the interest-only period. They should also understand the risks associated with this type of loan.

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What is interest-only mortgage?

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