Interest-Only Loan

An interest-only loan is a type of loan where the borrower pays only the interest on the principal for a certain period, often between 5 to 10 years. During this phase, the monthly payments are lower since only interest is due. Afterward, the borrower begins repaying both principal and interest, leading to higher payments. Interest-only loans can be helpful for those needing lower payments initially but can be risky if the borrower cannot handle increased payments when the principal repayment begins.