Interest-only loan
A loan where payments cover only interest for a set period, so the balance does not go down. After that period, payments jump to include principal or the balance comes due.
Also called: interest only, IO loan, interest-only mortgage
Related terms
The amount you borrowed, or the part of it you still owe. Each payment covers interest first, and the rest pays down principal, which builds equity.
Paying off a loan through regular payments over a set term. Early payments go mostly to interest; later ones go mostly to principal. An amortization schedule shows that split for every payment.
A loan with smaller payments for a set term followed by one large final payment of the remaining balance. Borrowers usually plan to sell or refinance before it comes due.
A mortgage that does not meet the federal qualified mortgage rules, often used by self-employed borrowers, investors or people with recent credit events. It allows other ways to document income but usually costs more.
A mortgage with a fixed rate for an initial period, then a rate that resets at set intervals based on an index plus a margin. Caps limit how much it can change. Payments can rise after the fixed period.