Interest-only mortgage.
In plain English
An interest-only mortgage has an early phase, often the first several years, when your payment covers only the interest and none of the principal. The monthly payment is lower during that window, but you build no equity from the loan and still owe the full amount. When the interest-only period ends, the payment jumps sharply because you must now repay the whole balance over the remaining years, sometimes alongside a higher rate. These loans can suit specific situations but carry real payment-shock risk, and they played a role in the 2008 housing crisis.
01Why it matters
The low early payment hides a large jump later and years of building no equity, so understanding the reset protects against a payment you cannot afford.
02The math, step by step
On a 400,000 dollar interest-only loan at 6 percent, the interest-only payment is about 2,000 dollars a month. When the interest-only period ends, the payment to repay the balance over the remaining term can rise to roughly 2,700 dollars or more.
03What this is NOT
An interest-only mortgage is NOT cheaper in the long run. The early payment is lower, but you pay down nothing, owe the full balance, and face a much higher payment when the interest-only period ends.
04Receipts
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