New York Real Estate Salesperson ExaminationFinancingEasy
A buyer is interested in purchasing a property but needs a loan that allows for flexible payments, with the option to pay only the interest for an initial period. Which type of mortgage would best suit this buyer's needs?
- AGraduated payment mortgage
- BInterest-only mortgage
- CReverse mortgage
- DFixed-rate mortgage
Show answer & explanationAnswer & explanation
Correct answer: B. Interest-only mortgage
An interest-only mortgage allows the borrower to pay only the interest on the principal loan amount for an initial period, offering lower monthly payments during that time.
Why the other options are wrong
- A. Graduated payment mortgages have payments that start low and increase over time, but they still include principal, not just interest-only options.
- C. A reverse mortgage allows homeowners to convert home equity into cash, typically for seniors, and is not for purchasing a new property with flexible payments.
- D. Fixed-rate mortgages have constant principal and interest payments throughout the loan term, not flexible interest-only payments.
Interest-Only Mortgage
A mortgage where the borrower pays only the interest on the principal balance for an initial period, after which payments typically increase to include principal.
- Lower initial monthly payments
- Principal balance does not decrease during the interest-only period
- Can be risky if not properly managed
Memory trick: Interest-Only: Just the 'I' in the 'O' of your initial payments.