What Is an Interest-Only Loan?

Short answer

An interest-only loan is a mortgage where, for a set period, your payment covers only the interest, so the balance does not go down. When that period ends, the payment rises even if rates stay the same (CFPB, checked October 2026). Interest-only loans cannot be Qualified Mortgages, so they come from non-QM, jumbo and investor programs.

Definition

A loan with an initial period of interest-only payments, followed by full principal and interest payments over the remaining term.

Worked example

Example only, not a quote: $500,000 at 7%, 30-year term with 10 years interest-only. Years 1-10: about $2,917 per month, and you still owe $500,000. Years 11-30: the loan amortizes over the remaining 20 years, so the payment jumps to about $3,876. A regular 30-year loan at the same rate would be about $3,327 from day one.

Pros and risks

• Lower payment during the interest-only period
• More cash flow for investors or borrowers with variable income
• No equity built from payments; equity depends on price changes and any extra principal you pay
• Payment shock when principal starts; the longer the interest-only period, the bigger the jump (CFPB CHARM)
• Often paired with an ARM, so the rate can change too

Who offers them

Because the CFPB excludes interest-only features from Qualified Mortgages, these loans come from non-QM lenders, portfolio jumbo lenders and investor programs. Expect stricter credit, larger down payments and more reserves. Approval is subject to credit and underwriting.

In South Florida

In Miami, interest-only is most common on jumbo purchases and on DSCR rentals, where a lower payment can help rent cover the debt. DSCR loans are business-purpose loans. Plan your exit, sale or refinance, before the payment resets.