# Interest-only loan

> An interest-only loan lets you pay only interest for a set period, so the balance doesn’t fall. What happens to the payment afterward, with an example.

URL: https://mail.mortgage-math-us.com/glossary/interest-only-loan/  
Last reviewed: 2026-10-29 · By the MortgageMath US Editorial team

## Quick answer

**An interest-only loan** is a mortgage whose scheduled payments cover only the interest for a set period, so the amount you owe doesn’t go down. When that period ends, you must start repaying principal — usually through higher monthly payments — pay off the balance, or refinance.

## Key facts

| Fact | Value | Source | As of |
|---|---|---|---|
| 30-year fixed average (used in the example) | 7.24% | [Freddie Mac Primary Mortgage Market Survey](https://www.freddiemac.com/pmms) | Week of Oct 29, 2026 |

## The payment jump

Take a $300,000 30-year loan at 7.24% with a 10-year interest-only period. For ten years the payment is $1,810, and the balance is still $300,000 at the end. The full balance must then be repaid over the remaining 20 years, so the payment rises to $2,369 — $559 more, a 31% increase. An ordinary fully amortizing 30-year loan at the same rate costs $2,044 from the start and has been paying down principal all along.

Don’t count on selling or refinancing before the jump: home values can fall and your finances can change.

## Who offers them

Interest-only features aren’t allowed in a [Qualified Mortgage](https://mail.mortgage-math-us.com/glossary/qualified-mortgage/), so these loans are usually [non-QM](https://mail.mortgage-math-us.com/glossary/non-qm-loan/) or jumbo products with stricter requirements. The same pattern shows up in a HELOC’s [draw period](https://mail.mortgage-math-us.com/glossary/draw-period/), and some loans end in a [balloon payment](https://mail.mortgage-math-us.com/glossary/balloon-payment/) instead of a higher monthly one. The [interest-only mortgages guide](https://mail.mortgage-math-us.com/loan-types/interest-only-mortgages/) covers who they suit and the risks.

## Sources

- [Freddie Mac Primary Mortgage Market Survey](https://www.freddiemac.com/pmms) — 30-year fixed rate, national weekly average (Week of Oct 29, 2026)
- [CFPB: What is an interest-only loan?](https://www.consumerfinance.gov/ask-cfpb/what-is-an-interest-only-loan-en-101/)

_General information, not financial advice._