Mortgage structure with an initial period of interest-only payments before principal amortization begins or a later balance must be refinanced.
An interest-only mortgage is a mortgage structure in which the borrower pays only interest for an initial period while principal repayment is deferred until later.
Interest-only mortgages matter because they can make housing costs look manageable early on without building much or any equity through required payments. Once the interest-only period ends, the borrower can face a sharp increase in payment or a need to refinance.
During the interest-only phase, the scheduled payment is usually:
Because the required payment covers interest only, the principal balance usually stays unchanged unless the borrower prepays it voluntarily.
| Mortgage type | Early payment pattern | Later consequence |
| — | — | — |
| Interest-only mortgage | Interest paid, principal deferred | Payment shock or refinancing need later |
| Endowment mortgage | Interest paid, policy funded separately | Principal depends on endowment policy proceeds |
| ISA mortgage | Interest paid, ISA funded separately | Principal depends on ISA value at maturity |
| Balloon mortgage | Partial or limited amortization | Large maturity balance |
| Self-amortizing mortgage | Principal and interest paid from the start | Balance steadily falls |
When reviewing Interest-Only Mortgage, ask whether it changes collateral value, lien priority, property cash flow, borrower capacity, closing funds, servicing, refinancing, or recovery proceeds. If it does, tie Interest-Only Mortgage to the loan file, title or contract evidence, underwriting ratio, and exit-risk assumption.
Interest-Only Loan: The broader loan-structure concept behind this mortgage form.
Balloon Mortgage: A related mortgage design with a concentrated maturity balance.
Endowment Mortgage: A historical interest-only mortgage variant that relies on an endowment policy to repay principal.
ISA Mortgage: A UK-style interest-only variant that pairs the mortgage with ISA contributions.
Loan-to-Value Ratio: Equity buildup can remain weak if principal does not decline.
Refinancing: Often becomes central when the interest-only phase ends.
Self-Amortizing Mortgage: The contrasting mortgage type that repays principal from the first payment.