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LSDefine
Simple English definitions for legal terms
IO mortgage
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A quick definition of IO mortgage:
An IO mortgage is a type of loan where the borrower only pays the interest for a certain period of time, usually a few years, and then must pay the full amount of the loan in one lump sum. It is also called an interest-only mortgage. Mortgages are loans that are used to buy property, and the property is used as collateral for the loan. If the borrower cannot pay back the loan, the lender can take possession of the property. There are many different types of mortgages, including adjustable-rate mortgages, fixed-rate mortgages, and balloon-payment mortgages.A more thorough explanation:
An IO mortgage, also known as an interest-only mortgage, is a type of mortgage where the borrower only pays the interest on the loan for a certain period of time, usually 5-10 years. At the end of this period, the borrower must pay the full principal amount in a lump sum or refinance the loan.
For example, if a borrower takes out a $200,000 IO mortgage with a 5-year term and a 4% interest rate, they would only have to pay $667 per month in interest for the first 5 years. After 5 years, they would have to pay the full $200,000.
IO mortgages can be risky for borrowers because they may not be able to afford the lump sum payment or refinance the loan when the interest-only period ends. However, they can be beneficial for borrowers who expect to have a higher income in the future or plan to sell the property before the end of the interest-only period.