An interest-only mortgage lets you pay only interest for an initial period, often 5 to 10 years, then switches to principal and interest over the remaining term, so the payment jumps sharply. Because qualified mortgages can’t have interest-only periods, these are mostly non-QM or jumbo loans, with higher rates and stricter requirements. They suit a narrow group of borrowers with irregular or rising income and strong assets.
How the payment changes
On a $600,000 loan at 7% with a 10-year interest-only period:
| Period | Monthly payment |
|---|---|
| Years 1 to 10 (interest only) | about $3,500 |
| Years 11 to 30 (principal and interest over 20 years) | about $4,652 |
| Comparison: standard 30-year from the start | about $3,992 |
After 10 interest-only years, you still owe the full $600,000. With a standard loan you’d owe about $515,000.
Try it: Amortization scheduleSee how a standard loan’s balance falls each year, and compare it with an interest-only loan where it doesn’t.Who uses them
- Borrowers with large bonuses or commission who pay down principal in lump sums.
- Investors focused on cash flow.
- High-income buyers who expect to sell or refinance before the payment resets.
The risks
- Payment shock when the interest-only period ends.
- No equity from payments: equity grows only if the home’s value rises or you prepay.
- Falling prices can leave you owing more than the home is worth.
- Higher rates and fees than conventional loans.
Alternatives
A standard 30-year loan with extra payments when you can gives similar flexibility with less risk; see the extra payment calculator. A 2-1 buydown lowers early payments temporarily. Compare options with compare mortgage offers and read non-QM loans.
Common questions
How long is the interest-only period?
Often 5 to 10 years, after which payments include principal over the remaining term.
Do I build equity with an interest-only loan?
Not from payments during the interest-only period; only from rising value or extra payments.
Are interest-only loans available on conventional terms?
Rarely. Qualified mortgages can’t have interest-only periods, so most are non-QM or jumbo loans.
Updated October 2026. Educational content. OfferBacked is not currently a lender and doesn’t issue pre-approvals or loans.