Kimberly Amadeo is an expert on U.S. and world economies and investing, with over 20 years of experience in economic analysis and business strategy. She is the President of the economic website World Money Watch. As a writer for The Balance, Kimberly provides insight on the state of the present-day economy, as well as past events that have had a lasting impact.

An interest-only loan is an adjustable-rate mortgage that allows the borrower to pay just the interest rate for the first few years. That’s often a low “teaser” rate.

That introductory period typically lasts between three to 10 years. ? ? After that, the loan converts to a conventional mortgage. The interest rate may increase and the monthly payment must also cover some of the principal. That increases the payment significantly. Some interest-only mortgages require the borrower to pay off the entire balance after the introductory period.

Advantages of Interest-Only Loans

The first advantage is that the monthly payments on an interest-only mortgage are initially lower than those of a conventional loan.