Finance
What is 'interest-only mortgage' and what are its risks for Delaware borrowers?
AA mortgage where the lender only charges interest, not the principal loan amount
BA loan where payments cover only interest for an initial period — the balance does not decrease; when the interest-only period ends, payments jump to cover both principal and interest, creating payment shock risk✓ Correct
CA mortgage with no principal repayment required — the entire balance is forgiven at maturity
DA government program for senior homeowners where only interest is charged
Explanation
An interest-only mortgage requires payments of only accrued interest for an initial period (typically 5–10 years). No principal is paid down. When the interest-only period ends, the borrower must begin making fully amortizing payments — which are significantly higher (payment shock). If the property hasn't appreciated, the borrower may owe more than it's worth. Risky for Delaware borrowers who don't plan for this transition.
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