Interest Only Mortgage
An interest-only loan is a mortgage loan in which, the borrower pays only the interest on the principal balance, for a set period of time. The principal balance remains unchanged during the set term. At the end of the interest-only term, the borrower has many options, such as:
- may enter an interest-only mortgage
- pay the principal
- convert the loan to a principal and interest payment (or amortized) loan
Interest-only commercial mortgages can play an important role in helping a business trying to get off the ground. When finding cash flow for the investment is difficult, an interest-only mortgage can be a very good option. On the other side interest-only loans represent a somewhat higher risk for lenders, so expect a slightly higher interest rate. Also considering today's fluctuating real estate market, the borrower may end up paying more than the actual value of the property when the interest-only commercial mortgage loan is finally paid off.