Which of the following is a characteristic of an interest-only mortgage?

An interest-only mortgage allows the borrower to pay only the interest portion of the loan for a predetermined period, which typically lasts anywhere from 5 to 10 years. During this time, the principal balance of the loan remains unchanged. This structure can provide lower initial monthly payments, making it attractive for borrowers who may anticipate increasing income or those who plan to sell or refinance before the interest-only period ends.

Choosing to only pay interest means that the borrower is not reducing the principal debt during this set period, which is a key defining feature of this type of mortgage. Eventually, the borrower will have to begin paying off the principal, often leading to significantly higher payments once the interest-only period concludes. Understanding this characteristic is important for both the borrower and the lender since it affects the overall cost and repayment strategy of the mortgage over time.