Choosing the Right Mortgage Repayment Structure
The standard amortizing mortgage (fixed monthly payment covering principal and interest) is the most common in the US. Interest-only loans were popular before 2008 — they offer lower initial payments but no equity build-up. Balloon mortgages have a large final payment and are typically short-term (5–7 years).
On a $400,000 30-year mortgage at 7%, an amortizing loan costs about $536,000 in total interest. A pure interest-only structure (paying principal at the end) would cost about $840,000 in interest — over $300,000 more.
Frequently Asked Questions
Yes, though less common. They're often used for investment properties, jumbo loans, or by borrowers who expect significant income growth. Most interest-only periods last 5–10 years before converting to a fully amortizing payment schedule.
Not typically without refinancing. Refinancing lets you change the rate, term, and structure, but usually has closing costs of 2–5% of the loan balance. Run the math on total interest savings vs. refinancing costs before deciding.