Interest-Only vs Amortizing Mortgage
**Interest-only** periods keep payments low by not paying principal—then the loan recasts to amortizing, often sharply higher. **Fully amortizing** loans build equity from day one with stable P&I on fixed-rate products.
Step by step
1. Model recast payment
Know the payment after the IO period ends—not just teaser payment.
2. Compare total interest
IO loans pay more interest if you never prepay principal during IO.
3. Match hold period
IO can work for short holds if you sell before recast—risky if not.
IO vs amortizing
IO trades cash flow now for payment shock or refinance risk later.
- Interest-only: Lower initial payment; no principal paydown; recast risk.
- Amortizing: Predictable equity; higher start payment; less shock.
Use our calculators
Common mistakes
- Assuming you can refinance before recast
- Ignoring IO on a primary home long term
FAQ
Do IO loans still require 20% down?
Often stricter—many are jumbo or investor products with higher bars.