An interest-only mortgage is a loan where your scheduled payments cover only the interest for a set number of years. Your loan balance does not go down during that time. When the interest-only period ends, your payment goes up because you must also pay back the principal, you can refinance if that is available, or you can pay off the balance. The CFPB warns not to count on selling or refinancing to get out of the higher payment. These loans are also not Qualified Mortgages under federal rules.
Interest-only loans sound simple: a lower payment now. But the loan does not stay that way. Here is how they work, in plain terms.
| Interest-only period | After it ends | |
|---|---|---|
| What you pay | Interest only | Principal and interest |
| Your loan balance | Stays the same | Goes down with each payment |
| Your monthly payment | Lower | Higher, even if rates stay the same |
| Equity from payments | None from your payments | Builds over time |
Example: if you borrow $400,000 and make only interest payments for 10 years, you still owe $400,000 at the end of year 10 (unless you paid extra on your own).
The CFPB says you may have a few options when the period ends:
The CFPB also gives this tip: do not assume you will be able to sell your home or refinance if your payment goes up. Home values can drop and your finances can change. If you cannot afford the higher payment on today's income, consider another loan.
Want to compare payments? Try the free mortgage calculators. They are estimates only, not a loan offer.
To see how monthly payments fit your budget, read How much house can I afford in Franklin, TN?
A loan with scheduled payments that cover only the interest for a set amount of time. The amount you owe does not go down with each payment during that time.
When the interest-only period ends, you must start paying back the principal too, so the monthly payment is higher, even if rates stay the same.
You may pay off the balance, refinance if it is available, or start paying down the balance each month at a higher payment.
No. Under federal rules, a Qualified Mortgage cannot have an interest-only period.
The CFPB says not to assume you can. Home values can fall and your finances can change.
Ask for a Loan Estimate for a loan without the interest-only feature, then compare the two side by side.
Have questions about loan options? Call me at (615) 495-6594, email travis@heathrowmtg.com, or start an application.
Figures checked November 9, 2026. Rules and rates can change. Examples are for illustration only and are not a loan offer.
