Interest Only Loan

What is an interest-only loan? 

An interest-only loan is a type of loan where you only pay the interest amount for a specific period. During this time, you don't pay off the original amount borrowed. After the interest-only period ends, you begin repaying both the principal and the interest. 

What’s the advantage of an interest only loan? 

The main advantage of an interest-only loan is that it allows first-time homebuyers to make smaller monthly payments at the beginning, which can be more manageable. This can be helpful if they expect their income to increase in the future. 

However, it's important to note that with interest-only payments, they're not building equity in the property, which happens when paying off the principal debt. 

How frequently is interest compounded? 

Interest can be compounded at different intervals, such as annually, quarterly or monthly. When compounding occurs more frequently than once a year, it influences calculations for both future and present values.