What exactly is a 'Interest Only' loan? - Posted by Joe (Oh)

Posted by Joeseph on August 12, 2003 at 07:23:33:

What institutions do these? And what do I call them as I approach the lender?

What exactly is a ‘Interest Only’ loan? - Posted by Joe (Oh)

Posted by Joe (Oh) on August 09, 2003 at 11:41:14:

I tried to search for that on this board and others to no avail…

So what is a interest only loan, and whats the catch?


Re: What exactly is a ‘Interest Only’ loan? - Posted by michaela-ATL

Posted by michaela-ATL on August 09, 2003 at 12:54:08:

as others wrote, you pay ‘interest only’. Usually it’s an adjustable rate. I refinanced my house in Dec at 4.125% interest only. THe rate is tied to the Libor index and went down this month to 3.675%. If you’re only planning to stay in a house for 2 years, then how much would you really pay off of your equity? almost nothing. Yet, your payment is quite a bit higher with a standard 30 year rate, than with an interest only.


Re: What exactly is a ‘Interest Only’ loan? - Posted by Brent_IL

Posted by Brent_IL on August 09, 2003 at 12:21:54:

No catch; the loan is what it is. Most mortgage loans amortize. The fixed payment will pay all interest and principal over the term of the loan. If you are only paying interest, you will still owe the principal at the end of the term.


$100,000 loan at 12% interest only for five years. The monthly payments are $1,000. After 60 months, you’d owe $100,000.

Re: What exactly is a ‘Interest Only’ loan? - Posted by Jasonrei

Posted by Jasonrei on August 09, 2003 at 12:15:12:

It means you only pay interest. The principal amount of the loan is due at some future date. Maybe in 3 months, 6 momths, 1 yr, 5 yrs, 30yrs, it all depends on what you agree to. Most of the money I borrow is paid for in monthly interest-only payments of 12-18%, with the loan all due back in 6-12 months. I hear there are some long-term conventional loans that offer this. I think they’d be a great deal, depending on all the terms. As far as a catch, there usually isn’t one. If there is, it would probably be 1) you have to pay some additional fees over what you’d pay for an amortized loan 2) conventional loans like this are probably hard to qualify for 3) you might pay higher interest than on an amortized loan.
Might be a good deal, might not. Depends.