A client is considering financing a new property with a structure that enables them to pay only the interest for an initial period, followed by principal and interest payments for the remaining term. This product offers more flexible payment options early in the mortgage term and is often utilized by individuals anticipating increased income or managing cash flow. What type of mortgage product is being described?

Question: A client is considering financing a new property with a structure that enables them to pay only the interest for an initial period, followed by principal and interest payments for the remaining term. This product offers more flexible payment options early in the mortgage term and is often utilized by individuals anticipating increased income or managing cash flow. What type of mortgage product is being described?

Answer options:

• Variable rate mortgage
• Home Equity Line of Credit (HELOC) ✅ Interest-only mortgage
• Reverse mortgage

Correct answer: Interest-only mortgage

Explanation: An interest-only mortgage allows the borrower to pay only the interest on the principal loan amount for a specified period, typically at the beginning of the mortgage term. This differs from a variable rate mortgage which has changing interest rates, a HELOC which is a revolving credit facility, and a reverse mortgage which allows homeowners to convert home equity into cash without monthly payments.