Interest Only Mortgage FAQs

In this section you will find answers to the most frequent questions we receive about interest only mortgages. If you have a question we do not address, please ask us directly! Please check our Mortgage Terms Glossary for commonly used mortgage terminology. The Federal Reserve Board also has interest only loan information here.

What is an interest only mortgage?
What is the advantage of an interest only mortgage?
Can I make extra payments during the interest only period?

What is an interest only mortgage?

An interest only mortgage is a mortgage that allows you to make monthly payments on just the loan's interest for a fixed period of time. Once this interest only period is over, the loan's principal and interest are amortized over the remainder of the loan's term. The monthly payments then go towards both principal and interest and so are higher than during the loan's interest only period.

What is the advantage of an interest only mortgage?

During the initial interest only period, monthly payments are typically lower than monthly payments for any other type of loan whose payments are based on both principal and interest. Additionally, because you qualify for an interest only mortgage based on the interest only payments, you can qualify for a significantly higher loan amount with an interest only mortgage than you could with a fixed or adjustable rate mortgage loan.

Can I make extra payments during the interest only period?

You can choose to pay down the principal of an interest only mortgage loan at any time by adding an additional amount to the loan's regular interest only payment. Any amount above the interest only payment will be applied directly to the loan's principal balance.

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