Interest only

Interest only payments are a type of loan repayment in which the borrower is only required to pay the interest that accrues on the principal balance for a certain period, typically set for 1 to 5 years. During this time, the borrower is not required to make any payments towards the principal amount borrowed, so the balance doesn't reduce.

Key features:

Temporary period: Interest-only payments are typically offered at the begging of a loan for a set time, normally from one to five years. Some lenders allow you to extend this period and some don’t. After the initial interest only period, the repayments will transition to principal and interest payments.

Lower initial payments: As the borrower is only paying the interest portion of the loan, initial payments are lower compared to fully amortized loan.

Higher future payments: After the interest only period ends, the borrower will start making payments that include the interest and the principal. This can result in significantly higher monthly payments.

Interest only payments can be advantageous for some borrowers, especially in situations where they expect their income to increase in the future or plan to sell the property before the interest only period expires.