shopping for home loan
Interest-Only Loans
Let's discuss one final type of mortgage - the interest-only loan. Here's how it works: Your early payments are very low, because they only cover interest, but things change three to ten years later when principal is added to the payment. What happens next?
Your payments become much higher than on a traditional loan, because the principal is paid off in a shorter time period.
Your payments become lower because the principal is subtracted from your interest.
Your payments stay the same, because the mortgage company gives you a grant to compensate for any difference.
"A" is correct. When the payments go up, you must have a larger income as well. Otherwise, it's easy to fall behind on the mortgage - and possibly lose your home.