Interest Only Definition

Interest-Only Loan. A loan in which, for a set period of time, the borrower pays only interest on the principal balance, with the principal balance remaining unchanged. A loan may be interest-only for its full term or for just a portion of the term. If interest-only payments are for less than the full term, that portion is referred to as.

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Interest-Only Strip Law and Legal Definition. It is a derivative security that consists of all or part of the portion of interest in the underlying loan or security. The interest-only strip is popular with insurance companies, mutual funds, and securities firms.

43% of the mortgage loans in Pool II have interest-only payments scheduled during the five-year fixed-rate period, with principal and interest payments commencing after the first rate-adjustment date.

Interest-only mortgages can have complex implications. Thus, as is the case with any mortgage or other loan, borrowers must be sure to read and understand the lender ‘s documentation and contemplate the implications of changes in interest rates.

Not all interest-only mortgages have a fixed interest rate. Some have one rate for the initial interest-only period and a higher rate-with a much larger monthly payment-for the remainder of the loan term. Others resemble adjustable-rate mortgages (arms). A popular variety has a fixed rate with interest-only payments for the first five years.

Fixed-rate interest-only mortgage. With a fixed-rate interest-only mortgage, you can make interest-only payments for the initial term, normally up to 10 years. At the end of the interest-only term, the loan is amortized to include principal and interest. This means payments will increase.

The interest only option in life insurance is a settlement option for those who are the beneficiaries of life insurance proceeds. beneficiaries often have the option of taking the policy proceeds in a lump sum, or in installments over a set period of time.