Finance
An interest-only mortgage requires the borrower to pay:
AEqual installments of principal and interest
BOnly interest for a specified period, with the full principal balance due at the end or when amortization begins✓ Correct
COnly principal with no interest charges
DA fixed principal payment each month
Explanation
With an interest-only mortgage, the borrower pays only interest for an initial period (often 5–10 years), after which they must begin repaying principal as well or make a balloon payment.
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Key Terms to Know
Amortization
The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Math Concepts
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