Interest-Only Mortgage

With an interest-only mortgage loan, you pay only the interest portion of each scheduled payment for a fixed term, often five to seven years.

After that, your payments increase, often substantially, to cover the accumulated unpaid principal plus the balance of the loan and the interest.

Before the higher payments begin, you may renegotiate your loan at the current interest rate or pay off the outstanding balance. However, it's possible that interest rates may have risen, in which case you will end up paying a higher rate on the entire unpaid principal.

If you have regularly invested the principal you weren't repaying and realized a return higher than the loan's interest rate, you could come out ahead. However, many borrowers don't invest the savings.

One risk with interest-only loans is that you may not be able to meet the higher payments once full repayment begins, especially if the interest-only payments themselves were a stretch.

a mortgage where the homeowner pays only the interest and none of the outstanding principal balance on a loan for a specified amount of time.