General Mortgage Knowledge · 20% of the SAFE exammedium
Correct answer: The borrower builds no equity through payments during the interest-only period and must eventually pay principal, resulting in higher future payments
During an interest-only period, 100% of each payment goes to interest and none reduces the principal balance. The borrower builds no equity through payments (though appreciation may add equity). At some point the loan must begin amortizing principal, causing payments to increase — sometimes substantially. "The interest rate is always variable, exposing the b..." is incorrect because interest-only loans can be fixed or variable. "The borrower builds no equity through payments durin..." is incorrect; the lender cannot arbitrarily demand full repayment. "Interest-only loans are prohibited for owner-occupie..." is false; interest-only loans are legal for owner-occupied homes.
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