Which of the following is a feature of an interest-only mortgage?

• A. Borrower makes only interest repayments per month
• B. Borrower makes both interest and capital payments monthly
• C. The loan is coupled with a life insurance policy
• D. The loan balance decreases automatically each month

Answer: (B)

Interest-only mortgages involve paying only the interest due each month, so the loan principal does not reduce during the term. The outstanding balance stays the same until the end, when the full principal must be repaid—often via a separate lump sum or an endowment/savings plan designed to cover the repayment. Because paying both interest and capital monthly would reduce the balance over time, that pattern is characteristic of a repayment mortgage, not an interest-only one. Some products may include a life insurance policy to cover the debt if the borrower dies, but that is about protection rather than how the loan is repaid. So the feature described—paying only the interest each month—best reflects an interest-only mortgage.