How is an interest-only mortgage different from the other kind of mortgage?

Here’s the thing: the main part of your mortgage is called the loan principal. That’s the part we lend you to buy a home. With most home loans, your monthly payment is split into four parts: Principal, Interest, Taxes, and Insurance.

But with an interest-only mortgage, you don’t have to pay your principal for the first few years of your loan (though you do still have to pay taxes and insurance, sorry about that!). During those first sweet years, your interest rate is low and fixed so you know exactly what’s going on.

Once your interest-only period is finished, your payments will go up because you’ll now be paying principal too. Additionally, you will be paying your principal back in a shorter period than if you’d had a regular kind of mortgage. For example, a 30-year loan term minus a 5-year interest-only period = 25 years left to pay principal.

Plus, your interest rate might be variable now, rising and falling with the markets.