The full explanation
According to the CFPB, when the period ends you may pay off the balance all at once, refinance if that is available, or start paying principal with higher monthly payments. The CFPB warns not to assume you will be able to sell or refinance, because the home's value or your finances could change. A Qualified Mortgage (QM) cannot have an interest-only period, and the Loan Estimate labels the feature "Interest Only."
An example
Gerardo is offered low interest-only payments. He asks how much his payment would rise once he starts paying principal, and whether he could afford it on today's income.
You will see it in…
- The Loan Estimate, page 1, in the product (“Interest Only”)
- The Loan Estimate, page 2, Adjustable Payment table (“Interest Only Payments?”)
- Your statement, when the payment rises as the period ends
