Your monthly payments are simply made up of interest. You do not pay off any of the mortgage during the term of the mortgage. You pay of the mortgage finally using the proceeds of a seperate investment plan for example, an endowment, personal pension or PEP and so on.

A loan that for a period of time (anywhere from 3 months to 10 years) only requires the borrower pay the interest incurred as according to the interest rate. Advantages of such a loan temporarily reduce the monthly payment amount in order to free up cash flow. During the term of interest-only payments the principle balance remains untouched, but is often offset by the increase of the market value of the home due to inflation and the properties location demand and market appeal.

A type of payment schedule where each payment repays the interest obligation only; the principal balance usually then comes due at the end of the loan term as a balloon payment.

This type of loan is most popular with homeowners who have homes that are appreciating in value and who want the lowest payment possible. Qualified borrowers make interest-only payments with the choice to make higher payments in order to reduce the principal. There is a variety of options, including making interest-only payments during the first 3, 5, or 7 years of these mortgages.

A term loan calling for payments of interest only, not to include any amount for principal.