interest-only

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Interest-Only

1. Describing a derivative in which the underlying asset is future interest payments on a pool of mortgages or other debt obligations. Interest-only derivatives are highly exposed to prepayment risk as homeowners who pay off their mortgages or loans early do not generate any more interest payments.

2. Describing a non-amortized loan. During the payment period of interest-only loans, one only pays on the interest that accumulates but not on the principal. At the end of the loan's term, the entire principal is due. An example is an interest-only mortgage, in which one makes interest payments for the term of the mortgage and then refinances in order to pay the principal at maturity.

interest-only (IO)

Of or relating to a derivative mortgage security scheduled to receive interest only from a pool of mortgages. An IO derivative security has no par value, and the owner of the security can lose money because of mortgage prepayments that reduce or eliminate interest payments. Compare principal-only.
References in periodicals archive ?
43% of the mortgage loans in Pool II have interest only payments scheduled during the five year fixed rate period, with principal and interest payments commencing after the first rate adjustment date.
63% of the mortgage loans in Pool III have interest only payments scheduled during the seven year fixed rate period, with principal and interest payments commencing after the first rate adjustment date.
May claimed that the Service can assess interest only when an underpayment exists.
52) Thus, any pre-1983 payment of assessed interest would be an overpayment of assessed interest only to the extent such payment exceeded the assessed interest owed, including the restricted interest.
Thus, if a person is considered a construction owner of a partnership interest only if the family attribution rules were applied more than once, that person is not a constructive owner of the interest.
20% of the mortgage loans in Pool II have interest only payments scheduled during the three year fixed rate period, with principal and interest payments commencing after the first rate adjustment date.