interest-only


Also found in: Dictionary, Thesaurus, Medical, Encyclopedia.

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 ?
Interest-only loans have been increasing, but borrowers should understand how to use them properly.
Interest-only loans also attract entrepreneurs and individuals who work on commission, says Dunagan.
Over the last few years, interest-only mortgages have continued to increase in popularity.
Complaints on interest-only mortgages are increasing, but they are still on a very small scale.
84% of the mortgage loans in pool IV have interest-only payments scheduled during the 10-year fixed-rate period, with principal and interest payments commencing after the first rate adjustment date.
65% 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.
65% of the Pool 3 loans provide for interest-only payments and have an interest-only period of ten years after origination.
65% of the Pool 4 loans provide for interest-only payments and have an interest-only period of ten years after origination.