What distinguishes an Interest Only Mortgage from other mortgage types?

An Interest Only Mortgage stands out from other mortgage types primarily because during the initial term, only interest payments are made. This means that the borrower is not reducing the principal balance of the loan during this period, which can often lead to lower monthly payments compared to mortgages where both principal and interest are paid.

This feature can be appealing for those who want to maintain cash flow for investments or other expenses. After the interest-only period ends, the borrower typically has to start making payments on the principal, which can lead to significantly increased payment amounts.

In contrast, options discussing the gradual decrease of the principal balance, the security of the loan with multiple properties, or higher interest rates do not accurately capture the defining characteristic of an Interest Only Mortgage. Instead, they reflect aspects of other mortgage types or features that do not correctly define the interest-only structure.