What Is an Interest-Only Mortgage?

Interest-Only Mortgage: Overview, How It Works, Example

By Kristi Waterworth – Updated Nov 25, 2025 at 3:28 PM EST | Fact-checked by Frank Bass

Key Points

Interest-only mortgages require only interest payments initially, raising future payment amounts.
These mortgages suit those expecting higher future income or planning to sell properties soon.
Investors in real estate or mortgage-backed securities often consider interest-only mortgages for higher returns.

If you're looking for a way into today's expensive and competitive housing market, you may be considering an interest-only (IO) mortgage. Or maybe you were looking for a mortgage backed security and saw IO mortgages listed and wondered what they were. Either way, you're in the right place -- read on to learn about this specialized mortgage product.

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People who invest in mortgage-backed securities, on the other hand, may run into interest-only mortgages as part of those MBS packages. MBS can contain all kinds of mortgages, from conventional loans backed by the Federal National Mortgage Association (FNMA -1.62%), or Fannie Mae, to very risky subprime or non-qualifying loans such as interest-only mortgages.

The interest-only mortgages often have substantial returns attached to them because of the risk involved, which can feel a little like gambling. However, they can also pay handsomely if the mortgages you've invested in are paid off.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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Kristi Waterworth has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.