What type of mortgage allows the borrower to pay only interest for a specified period of time?

An interest-only mortgage allows the borrower to make payments solely on the interest for a defined period, which typically ranges from 5 to 10 years. During this initial phase, the principal balance remains unchanged since no payments are being applied toward reducing it. At the end of the interest-only period, the borrower may face a number of options, including refinancing, making a lump-sum payment, or commencing fully amortized payments where both principal and interest are included. This kind of mortgage can be appealing for those who want lower initial monthly payments, perhaps during a time when their financial situation allows them to invest their money elsewhere.

Understanding the characteristics of this mortgage helps borrowers anticipate future payment increases after the interest-only period ends and make informed financial decisions accordingly. While other mortgage options mentioned may have their own unique features, such as having both interest and principal payments starting immediately or being backed by government agencies, they do not fit the specific requirement of allowing interest-only payments for an initial period.