What type of mortgage allows for payments to be made after a period of loan origination?

• A. Fixed-rate mortgage
• B. Interest-only mortgage
• C. Adjustable-rate mortgage
• D. Conventional mortgage

Answer: (B)

An interest-only mortgage is characterized by the ability for borrowers to pay only the interest for a specified period, rather than the principal amount of the loan. This type of mortgage typically allows those early payments to focus solely on interest, meaning that no principal reduction occurs during that time. After the interest-only period expires, borrowers begin to make payments that include both principal and interest, which can lead to significantly higher monthly payments once the full repayment period starts. This structure can be advantageous for borrowers looking for lower initial payments, typically used in situations where borrowers anticipate increased income in the future or predict an increase in property value.

In contrast, a fixed-rate mortgage would not provide the option for only interest to be paid initially; borrowers pay both interest and principal throughout the life of the loan. An adjustable-rate mortgage can also involve changes in the monthly payment, but it does not specifically focus on interest-only payments during a set period. A conventional mortgage encompasses various loans that meet standards set by the government but does not imply the flexibility of interest-only payment structures. Thus, the unique feature of an interest-only mortgage is what makes it the suitable answer to the question.