What is an interest-only mortgage? How does it differ from fixed-rate and adjustable-rate mortgages?

Question

What is an interest-only mortgage? How does it differ from fixed-rate and adjustable-rate mortgages?

Answer 1

For an interest only loan...with each payment you make you are only paying the interest generated not any of the principal. You most likely can make a payment over the monthly amount due to pay down the principal.

Answer 2

An Interest Only Mortgage is when the payment that is due only covers the interest applied to the loan balance.

How is differs from a Fixed Rate Loan is that an Interest Only Loan is only fixed for a certain period of time (2, 3, 5, 7, or 10 years) and then it will adjust. So in essence an Interest Only Loan IS an Adjustable Rate Mortgage once the fixed period expires.

An Adjustable Rate Mortgage is a loan that is fixed for a certain amount of time, then the rate and payment adjust monthly (they go up!). They are attractive because they offer lower payments and rates for the duration of the time they are fixed (2, 3, 5, 7, or 10  years). Adjustable Rate Loans can either be Interest only , or Principal and Interest (paying principal will make the payment slightly higher)

You should discuss your goals of the property you are financing with your Mortgage Broker to decide which Loan Product works the best for your needs. Be careful because the wrong decision could adversely affect your financial future.