Reviewed by the Editorial Team · Updated July 10, 2026 · 6 min read
An interest-only mortgage lets you pay just interest for an initial stretch, often 5 to 10 years, before payments reset to include principal too — and that reset can jump sharply.
Key takeaways
An interest-only mortgage lets borrowers pay just interest for an initial stretch, often 5 to 10 years, before payments reset to include principal.
No equity builds during the interest-only years, and the payment can jump sharply once the loan converts to full principal and interest.
It suits borrowers with high or variable income, or those who plan to sell or refinance before the reset date arrives.
These are usually non-QM or jumbo ARM products with stricter credit and down-payment rules than a standard mortgage.
Interest-only period
Typically 5-10 years
After reset
Payment jumps to full P&I, or a balloon
Loan type
Usually a non-QM or jumbo ARM product
Best for
High, variable income or short holds
How an interest-only mortgage works
For a set period, your payment covers only the interest charged that month. None of it reduces the loan balance, so the amount you owe stays flat during that stretch.
Once the interest-only period ends, the remaining balance amortizes over whatever term is left, so the same debt gets paid off in fewer years — which raises the payment.
The payment-shock trade-off
Interest-only payments build no equity on their own. Every dollar you save early gets offset by a larger payment later, plus a home value that isn't being paid down.
Because it's a niche, non-QM product in most markets today, pricing and qualification standards are typically stricter than a standard fixed-rate loan.
Payment shock
When the interest-only period ends, the monthly payment can jump substantially in a single month since the same balance now amortizes over a shorter remaining term.
Who an interest-only mortgage fits
This structure suits a narrow, specific set of borrowers rather than the typical homebuyer looking for predictable, steadily shrinking debt.
Borrowers with high but irregular income, like commission or bonus-heavy earners
Buyers who plan to sell or refinance before the interest-only period ends
Investors prioritizing cash flow over near-term equity buildup
Households with a clear plan for the eventual payment increase
It's a weak fit for buyers who need a predictable payment for the long haul, or anyone counting on the loan itself to build equity over time.
Interest-Only Mortgages: pros and cons
Pros
Lower payments during the interest-only period
Frees up cash flow for other goals
Fits irregular or rising income patterns
Extra principal payments usually allowed anytime
Can stretch buying power short-term
Cons
No equity built during the interest-only years
Payment jumps sharply once it resets
Stricter non-QM credit and down-payment rules
More exposure if home values fall
Fewer lenders offer them today
Where to find an interest-only mortgage lender
Post-2008 qualified-mortgage rules pushed interest-only loans out of the conventional, FHA and VA space. They now live mostly with:
Portfolio loans at community and regional banks
Jumbo lenders for high-balance properties
Non-QM lenders for self-employed or investor borrowers
It's a loan where your payment covers only interest for a set period, with none going toward the principal balance. Once that period ends, payments reset to include principal too, which raises the monthly cost.
How long is the interest-only period?
Most interest-only mortgages set the period at 5, 7, or 10 years. After that, the remaining balance amortizes over what's left of the term, or the loan ends in a balloon payment, depending on how it's structured.
Who is an interest-only mortgage best for?
Borrowers with high but variable income, or buyers who plan to sell or refinance before the interest-only period ends. It's a poor fit for anyone who needs a stable, predictable payment or wants to build equity through their payments.
Is an interest-only mortgage a good idea?
It depends on discipline and timeline. It can work for borrowers with irregular but rising income, or a firm plan to sell or refinance before the interest-only period ends; it's a poor fit if you have no strategy for the payment jump, since you'll owe more per month with zero equity built up.
How much is an interest-only mortgage on $200,000?
The interest-only payment is just the loan balance times the annual interest rate, divided by 12 — no principal included. html">mortgage calculator for a precise number.
Is it still possible to get an interest-only mortgage?
Yes, but they're far less common than before 2008. Most conventional, FHA and VA lenders no longer offer them; they now show up mainly as non-QM, jumbo, or portfolio loans through specialty and regional lenders, usually with stricter credit and down-payment requirements.
How much is a $500,000 mortgage at 6% interest?
Interest-only, that's $2,500 a month — just $500,000 times 6% divided by 12. If the loan instead amortizes fully over 30 years at 6%, the principal-and-interest payment runs closer to $3,000 a month, since part of each payment starts paying down the balance.
This guide is general information, not a lending decision. Program rules and dollar limits change — verify current figures with a licensed lender and confirm licensing at NMLS Consumer Access. See all loan types.
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