Which type of loan might require the borrower to pay interest only during a specific period?

An interest-only mortgage is designed specifically for borrowers who wish to pay only the interest on the loan for a certain period, typically ranging from 5 to 10 years. During this initial phase, the principal balance remains unchanged, which can help borrowers manage their cash flow and increase purchasing power in the short term. After the interest-only period ends, the borrower begins to pay both principal and interest, often resulting in higher payments.

This type of loan can be appealing for those who expect their income to increase or those who are investing in properties that may appreciate in value before they need to start repaying the principal. Understanding this structure is crucial for borrowers to ensure it aligns with their financial strategies and future plans.