QandAs: Loans

What is a One Year Interest Only Loan?

Answer:
Homeowners who choose a one-year interest only mortgage

loan have the option of only paying the interest for the first year. Once the interest only period concludes, the mortgage payment will adjust to include both principal and interest.

One-year interest only loans can have a traditional fixed rate or an adjustable rate. If the loan has an adjustable rate, a rate increase or decrease will likely occur after one year. During the one-year interest only period, borrowers can opt to make larger payments, in which the extra money is applied to the principal. However, if they cannot afford higher payments, the interest only option allows them to keep payments low. This mortgage option is ideal for borrowers who anticipate a salary increase within the next 12 months.


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