What type of loan program requires the borrower to only pay interest on the loan?

An Interest Only Loan is a specific type of mortgage that allows the borrower to pay only the interest for a predetermined period, typically at the beginning of the loan term. During this initial phase, the principal balance does not decrease, which means that the borrower does not build equity unless they pay down the principal or the property value increases. This structure can result in lower monthly payments during the interest-only period, making it attractive to borrowers who anticipate an increase in income or a sale of the property before the principal payments begin.

In contrast, an Amortizing Loan involves monthly payments that cover both interest and principal, ensuring that the loan balance decreases over time. A Fixed Rate Loan refers to a mortgage where the interest rate remains constant throughout the term, regardless of the payment structure. A Balloon Loan typically consists of lower payments over a set term, followed by a large payment of the remaining principal at the end of that term. In this context, the Interest Only Loan is distinct due to its focus solely on interest payments during the initial phase, leading to the correct choice.