An interest-only loan is a loan that allows the borrower to pay only the interest on the loan for a specific period of time, usually between five and ten years. During this time, the principal balance remains the same, resulting in lower monthly payments than traditional mortgages. However, when the interest-only period ends, the interest rate adjusts and the borrower must begin making payments toward both the principal and interest. This can result in significantly higher monthly payments. 

At the end of the interest-only period, the borrower has a few options:

• Renegotiate: The borrower can renegotiate another interest-only mortgage.
• Pay the principal: The borrower can pay the principal in one large balloon payment or in monthly payments over the remaining term of the loan.
• Convert to a principal-and-interest loan: The borrower can convert the loan to a principal-and-interest loan, which is also known as an amortizing loan. 

Interest-only loans are usually adjustable-rate mortgages (ARMs), which generally have lower rates than fixed-rate mortgages (FRMs). However, some say that borrowers shouldn't assume they'll be able to sell their home or refinance their loan if their payment increases, as property values can decline, or financial conditions can change.

Making interest only payments can help with monthly cash flow and reduce the need to draw from income earning assets.