mortgage

What is an interest-only loan?

 

What is an interest-only loan?

The Bankrate.com financial term of the day is: "interest-only loan."

When you take out a mortgage or other loan, you usually pay it back with interest, although there may be times when the interest is all you pay. With an interest-only loan, you pay just the accumulating interest, nothing toward the loan balance, so that the amount you owe never goes down. When a loan is interest-only, typically that's only temporary, maybe as a promotional perk for a new borrower. Sooner or later, the payments rise so that they include both interest and principal.

When you have an interest-only loan, you pay the cost of borrowing but don't pay back what you actually borrowed.

To find a great rate on a home loan, visit the Mortgage section at Bankrate.com.

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