Interest-Only Mortgage

An interest-only mortgage is a type of mortgage where you only pay interest during the term and are not required to make repayments. This means your monthly payments are relatively low, but your debt remains the same — until the moment you must repay the loan.

How does it work?

You do not make repayments, you only pay interest.

The mortgage debt remains the same throughout the term.

At the end of the term (usually 30 years), you must repay the full debt in one lump sum — for example, by selling your home or using savings.

You may make repayments during the term, but this is not required.

Advantages

Low monthly payments: You only pay interest, no repayments.

Flexibility: You can decide yourself when and how much you repay. At some point however, you must repay the full amount.

Disadvantages

No wealth accumulation: You do not repay, so you remain with the debt.

Repayment obligation at the end date: If you cannot pay then, you may have to sell your home or you need to take out a new mortgage.

You may not be able to load the full amount in a interest-only mortgage.

This mortgage type is often used in combination with an annuity or linear mortgage, so that you repay part and keep part flexible.