Real Estate Glossary

What is Interest-Only Loan?

A loan in which the borrower only pays the interest on the loan each month, and not the principal. This means that the loan balance does not decrease over time. Interest-only loans can be beneficial for borrowers who expect to receive a windfall or increase in income that will allow them to pay off the loan in full before the interest-only period ends. However, interest-only loans are generally considered more risky, as the borrower could end up owing more than the original loan amount if the loan is not paid off before the interest-only period ends.