Interest-Only Loans: InterestOnlyLoan.ws is The Interest Only Loan WebSite | Definition, Links and Other Useful Information About Interest Only Loans I nterest O nly L oans The Definition of Interest Only Loans What are Interest Only Loans When we hear the term "Interest Only Loan" we intuitively come to the conclusion that this could actually mean a loan where the borrower is only responsible for paying the interest on a loan. Ha! What a beautiful world this would be if that were true! In fact, an Interest Only Loan is a loan where the borrower makes no payments on the principal for a loan for a preset and very specific amount of time. After that preset time has elapsed, the borrower is then responsible for making fully amortized payments covering both the principal and the interest on the loan, just as the borrower would with a student loan , a standard mortgage or a car loan . If the above explanation isn't clear, here's a simple example of an Interest Only Loan: If you were to walk into a bank and ask for an Interest Only Loan, the loan officer may offer you an Interest Only Loan with a five (5) year fixed rate of interest term and a full term of 30 years . If you were to accept the terms of this loan, you would pay only the interest on the loan for the first five (5) years. As soon as the five (5) years are up--in other words, when payment month #61 comes around--you would then start making payments covering both the interest and the principal for this loan (i.e. fully amortized payments) until the loan is completely paid off . The interest rate charged by the bank offering the Interest Only Loan is usually determined by taking the current LIBOR rate and adding a margin (the margin being the bank's profit.) The Advantages of Interest Only Loans What are the advantages of Interest Only Loans As you might have guessed already, signing up for an Interest Only Loan means that during the interest only period of the loan, you payment are very affordable, much less than they would be if you were making standard amortized payments to cover both the principal and the interest. This means that you would have extra money to play with during the interest only period, cash that you can use for high risk investing, home improvements , starting a business or business financing , etc. Another advantage of Interest Only Loans is that you get greater purchasing power for that first or second home. Since most people who are in home-buying market are confident that their incomes will increase during the interest-only period of the loan, this often means that the home buyer can go for a home of higher value than he or she otherwise would have with a standard mor