What type of mortgage matures without any reduction in principal?

An interest-only mortgage is a type of loan where the borrower is only required to pay the interest for a specified period of time, which can range from several years to the entirety of the loan term. During this period, the principal balance does not decrease because the borrower is not making any principal payments. This results in the situation where, at the end of the interest-only period, the borrower still owes the full loan amount.

This structure can be appealing for borrowers seeking lower initial monthly payments or who anticipate an increase in their income or asset value in the future that would allow them to pay off the principal more easily later. However, it can also pose risks if the property's value does not appreciate as expected, or if the borrower is not prepared to make larger payments when the principal repayment begins. Understanding this type of mortgage is important for assessing borrower risk and cash flow implications in real estate finance.