Interest Only Mortgage

An interest only mortgage will collect only interest on each monthly payment. Interest only mortgages usually bear interest that compounds monthly. When the monthly payment comes due it will only reflect the interest that accrued during the compounding period.

Interest only mortgages can be a problem because principal never gets repaid. It is important that if you enter into an interest only mortgage that you have significant pre-payment privileges. Interest only mortgages will usually carry low monthly payments so paying more than your minimum payment will be required if you want to reduce your balance.

Interest only mortgages are usually offered on lines of credit and private mortgages.