Also called: IO period
Interest-only
Interest-only is a repayment arrangement where scheduled payments cover interest alone for an agreed period, leaving the principal unchanged until the period ends. The loan then reverts to principal and interest, or the balance falls due.
What is an interest-only?
Interest-only is a repayment arrangement where scheduled payments cover interest alone for an agreed period, leaving the principal unchanged until the period ends. The loan then reverts to principal and interest, or the balance falls due.
Example
A 12-month interest-only period on a $600,000 commercial loan lowers repayments while a tenant fit-out is completed.
Why it matters
It preserves cash while income ramps up, but repayments step up afterwards and total interest is higher.