Dear Yahoo!: How does An Interest-Only Loan Work? Nancysan Carlos, California
Dear Nancy:.. Most loan payments include both principal and interest Interest is the price paid for borrowing money, while the principal is the actual amount of borrowed money In an interest-only loan, the interest of the loan is paid off before the principal . Many mortgages are interest-only loans -. this allows the lender to make a quicker profit on the loan, and keep the interest rate low As James Kitchen notes in ArticleInsider, during the first years of an interest-only mortgage, the entire monthly payment goes toward interest. Wikipedia also mentions that many interest-only loans are structured so the initial interest-only payments are lower than the principal payments. This allows the borrower, who expects to earn more over time, to obtain a larger loan. For more on the insiding yahoo! Finance's Loan Basics.
