Which loan program directs the borrower's payments solely towards the interest due on the loan?

The loan program that directs the borrower's payments solely towards the interest due on the loan is the Interest Only (I-O) loan. In this type of loan structure, the borrower pays only the interest for a specified period, meaning they are not reducing the principal balance during that time. This can lead to lower monthly payments compared to traditional amortized loans where both principal and interest are paid.

During the interest-only period, borrowers may find it easier to manage cash flow since their payment obligations are minimized. However, it is important to note that once this period ends, the borrower will typically start making payments that include both principal and interest, which can lead to significantly higher payments once the loan transitions into full amortization. Understanding this structure is critical for borrowers in evaluating their long-term financial planning and the total cost of the loan.

The other options represent different loan structures. An amortized loan includes both principal and interest payments, eventually paying off the loan over a specified term. Fixed-rate mortgages maintain a consistent interest rate but do not exclusively focus on interest payments. Balloon loans typically involve low monthly payments followed by a large payment at the end, which can often include both principal and interest.