What is an Interest-Only Loan Quizlet?

If you’re wondering what an interest-only loan is, you’re in luck. Generally, an ARM allows borrowers to make only interest payments on the loan for a specified period of time. Afterwards, they’ll have to pay back the loan’s principal and interest. This type of loan is a popular choice among homeowners because it offers many benefits. It can be particularly useful if you’re considering a home-improvement project.

However, while an interest-only loan offers lower monthly payments, it can be a risky option if your property doesn’t appreciate. These loans often fluctuate with a specific economic index, so the interest rate will increase or decrease as the index changes. Make sure you understand the terms of your interest-only loan before signing it. If you’re unsure, consult your loan agreement. It should spell out exactly how your interest rate will change and the repayment terms.