<p>We were talking about such loans in one lecture, but in detail, we discussed interest-only mortgages. I have some notes on it and will write the info I have here; maybe, for someone, it will be interesting and informative.</p>
<p>The term &quot;interest-only mortgage&quot; (IO mortgage) refers to a house loan that enables you to pay only the interest for a specific time frame. After that time, you have three options: refinance, make a lump sum payment for the remaining balance, or start making regular monthly payments. The advantage of an interest-only mortgage is that you can make minimal monthly payments for the first few years you own the house. However, there are several disadvantages, and interest-only mortgages are regarded as risky. Here is all the information you require on how they operate and how to be eligible.</p>
<p>Such a loan type has both pros and cons.</p>
<p>Pros:</p>
<ul>
<li>monthly payments are usually lower</li>
<li>rates may be lower as well</li>
<li>can help you to buy a better and more expensive home</li>
</ul>
<p>Cons:</p>
<ul>
<li>low payments are temporary</li>
<li>rates can go up</li>
<li>existing equity gained from the payment can be lost</li>
</ul>
<p>It's hard to say whether such a loan is good or bad, it's up to a person to decide.</p>
<p>Also, when I was looking for some additional information on that topic, I came across this article <a href="https://fitmymoney.com/how-to-pay-your-mortgage-with-a-credit-card/" rel="nofollow noreferrer">https://fitmymoney.com/how-to-pay-your-mortgage-with-a-credit-card/</a> which is also dedicated to paying off mortgages, but with a credit card. I've never had it and never paid it off with cash or a card, but that information is pretty interesting and useful. There are aslo descriptions of cars, and one of them offers bonuses for the sum you pay off. Maybe, it's also financially beneficial, and I just need to learn more detail</p>

CC BY-SA 4.0
2022-08-19T15:15:19.887Z
2022-08-23T17:36:28.597Z
2022-08-23T17:36:28.597Z
DavidHassel
<p>In his comment to the original question user Paŭlo Ebermann gave me the right hint: I posed my question unclearly and did not mention that I were interested mainly in <strong>non-repayable loans with interest but finite term</strong>.</p>
<p>And Paŭlo is perfectly right that this is just <strong>partial pay back in rates</strong>.</p>
<p>We then may compare (in order of &quot;generosity&quot;)</p>
<ul>
<li><p>full pay back at once with interest</p>
</li>
<li><p>full pay back in rates with interest</p>
</li>
<li><p>no pay back with interest (no maturity date = perpetual bond)</p>
</li>
<li><p>partial pay back at once</p>
</li>
<li><p>partial pay back in rates</p>
</li>
<li><p>no pay back without interest (= gift)</p>
</li>
</ul>
<p>In the partial cases you don't need interest but can subsume it in the part to be paid back.</p>
<p>So the answer to my question is: This kind of interest-only loans is essentially to be called &quot;partial pay back in rates&quot;.</p>
<p>On the market partial pay back doesn't play a role because its definitely a (partial) gift (the rest that doesn't have to be paid back) and gifts are not made on the market, right?</p>
<p>But partial pay back in rates may be a tool of state subsidy.</p>

CC BY-SA 4.0
2023-12-03T21:52:57.480Z
So when you say "pay back in rates" it means there isn't a date where you pay the principal but you make interest payments in perpetuity? In that case, how can it be partial? Wouldn't the payments eventually add up to more than the loaned amount since you pay forever? Or am I missing something?
Nicolas Torres
CC BY-SA 4.0
2022-03-30T13:34:05.660Z
2022-03-30T14:03:26.410Z
2022-03-30T14:03:26.410Z
Hans-Peter Stricker
<p>Classic example are the British <a href="https://en.wikipedia.org/wiki/Consol_(bond)" rel="noreferrer">consol bonds</a>. British consol bonds are perpetuities so that means the principal never has to be paid back (although government could repurchase them on an open market).</p>
<p>Consols only pay coupon payments (interest equivalent for bonds) and since they are perpetual the principal never has to be paid back.</p>
<p>General term for such loans where principal does not need to be repaid is <em>perpetual loans</em> (although most people will just use term perpetuity which is umbrella term that can be used for any asset, not just loan, which entitles owner to perpetual interest rate payments).</p>

CC BY-SA 4.0
2022-03-29T12:21:34.377Z
Is there a common name for this type of loan? Is "interest-only loan" ok. (I mean, consol bonds are only an example - of what?)
Hans-Peter Stricker
CC BY-SA 4.0
2022-03-29T12:24:10.087Z
What about "interest-bearing gift"?
Hans-Peter Stricker
CC BY-SA 4.0
2022-03-29T12:36:12.377Z
@Hans-PeterStricker If you read the *first* sentence of 1muflon1's reference, you'll find "...consols [...] were government debt issues in the form of perpetual bonds", and following the link for perpetual bond you'll find "A perpetual bond [...] is a bond with no maturity date".
Giskard
CC BY-SA 4.0
2022-03-29T12:43:11.240Z
@Giskard: The rationale of perpetual bonds is explained in the WP article: "Most perpetual bonds issued in the present day are deeply subordinated bonds issued by banks. The bonds [...] help the banks fulfill their capital requirements." Can you explain in a few words what this means? How do perpetual bonds help the banks fulfill their capital requirements? Which requirements exactly?
Hans-Peter Stricker
CC BY-SA 4.0
2022-03-29T12:46:31.197Z
@Hans-PeterStricker if gift bears interest then by definition it ceases to be a gift. The name for such loans are perpetuities (perpetual loans - although not every perpetuity needs to be a loan but perpetuity is umbrella term that includes all such loans where only interest is being paid). Or you could just use term perpetual loan (although people will typically just say perpetuity even though its technically an wider umbrella term)
1muflon1
CC BY-SA 4.0
2022-03-29T13:21:24.077Z
@Hans-PeterStricker No? What makes you think I can explain this? Also, post new questions as new questions.
Giskard
CC BY-SA 4.0
2022-03-29T12:20:16.780Z
2022-03-29T12:53:12.630Z
2022-03-29T12:53:12.630Z
1muflon1
<p>A normal loan has to be paid back with interest. Every now and then there are <strong>interest-free loans</strong> where only the loan has to be paid back but no interest, e.g. among relatives or friends, but also as a form of state subsidy.</p>
<p>I am looking for the name and examples of <strong>interest-only loans</strong> from practice where only an interest has to be paid for some period of time, but the loan itself doesn't have to be paid back. I can imagine situations where such loans (or gifts) may make sense (again among relatives or friends or as a form of state subsidy). The idea might be: The borrower must continuously prove that he is serious and worth the gift.</p>

CC BY-SA 4.0
2022-03-29T21:22:27.167Z
I guess there is a difference between "interest paid forever" and "interest for X time" – the second one can be reworded to a normal (possibly partial) "pay back in rates" plan. (There might be also a version like "interest forever, but one side has an option to cancel it (which then forces a payback)".
Paŭlo Ebermann
<interest-rate><credit><subsidies>
Loans that don't have to be paid back (only the interest)
Hans-Peter Stricker
# Loans that don't have to be paid back (only the interest)

(Asked by: username_0 on 2022-03-29)

A normal loan has to be paid back with interest. Every now and then there are **interest-free loans** where only the loan has to be paid back but no interest, e.g. among relatives or friends, but also as a form of state subsidy.

I am looking for the name and examples of **interest-only loans** from practice where only an interest has to be paid for some period of time, but the loan itself doesn't have to be paid back. I can imagine situations where such loans (or gifts) may make sense (again among relatives or friends or as a form of state subsidy). The idea might be: The borrower must continuously prove that he is serious and worth the gift.

**Tags:** interest-rate, credit, subsidies

> **Comments:**
> **username_1**: I guess there is a difference between "interest paid forever" and "interest for X time" – the second one can be reworded to a normal (possibly partial) "pay back in rates" plan. (There might be also a version like "interest forever, but one side has an option to cancel it (which then forces a payback)".  

---

## 3 answers

### Answer by username_4 on 2022-03-29. Score: 6 | Accepted answer

Classic example are the British [consol bonds](https://en.wikipedia.org/wiki/Consol_(bond)). British consol bonds are perpetuities so that means the principal never has to be paid back (although government could repurchase them on an open market).

Consols only pay coupon payments (interest equivalent for bonds) and since they are perpetual the principal never has to be paid back.

General term for such loans where principal does not need to be repaid is *perpetual loans* (although most people will just use term perpetuity which is umbrella term that can be used for any asset, not just loan, which entitles owner to perpetual interest rate payments).

> **Comments:**
> **username_0**: Is there a common name for this type of loan? Is "interest-only loan" ok. (I mean, consol bonds are only an example - of what?)  
> **username_0**: What about "interest-bearing gift"?  
> **username_5**: @username_0 If you read the *first* sentence of username_4's reference, you'll find "...consols [...] were government debt issues in the form of perpetual bonds", and following the link for perpetual bond you'll find "A perpetual bond [...] is a bond with no maturity date".  
> **username_0**: @username_5: The rationale of perpetual bonds is explained in the WP article: "Most perpetual bonds issued in the present day are deeply subordinated bonds issued by banks. The bonds [...] help the banks fulfill their capital requirements." Can you explain in a few words what this means? How do perpetual bonds help the banks fulfill their capital requirements? Which requirements exactly?  
> **username_4**: @username_0 if gift bears interest then by definition it ceases to be a gift. The name for such loans are perpetuities (perpetual loans - although not every perpetuity needs to be a loan but perpetuity is umbrella term that includes all such loans where only interest is being paid). Or you could just use term perpetual loan (although people will typically just say perpetuity even though its technically an wider umbrella term)  
> **username_5**: @username_0 No? What makes you think I can explain this? Also, post new questions as new questions.  

---

### Answer by username_2 on 2022-08-19. Score: 2

We were talking about such loans in one lecture, but in detail, we discussed interest-only mortgages. I have some notes on it and will write the info I have here; maybe, for someone, it will be interesting and informative.

The term "interest-only mortgage" (IO mortgage) refers to a house loan that enables you to pay only the interest for a specific time frame. After that time, you have three options: refinance, make a lump sum payment for the remaining balance, or start making regular monthly payments. The advantage of an interest-only mortgage is that you can make minimal monthly payments for the first few years you own the house. However, there are several disadvantages, and interest-only mortgages are regarded as risky. Here is all the information you require on how they operate and how to be eligible.

Such a loan type has both pros and cons.

Pros:

* monthly payments are usually lower
* rates may be lower as well
* can help you to buy a better and more expensive home

Cons:

* low payments are temporary
* rates can go up
* existing equity gained from the payment can be lost

It's hard to say whether such a loan is good or bad, it's up to a person to decide.

Also, when I was looking for some additional information on that topic, I came across this article <https://fitmymoney.com/how-to-pay-your-mortgage-with-a-credit-card/> which is also dedicated to paying off mortgages, but with a credit card. I've never had it and never paid it off with cash or a card, but that information is pretty interesting and useful. There are aslo descriptions of cars, and one of them offers bonuses for the sum you pay off. Maybe, it's also financially beneficial, and I just need to learn more detail


---

### Answer by username_0 on 2022-03-30. Score: 1

In his comment to the original question user username_1 username_1 gave me the right hint: I posed my question unclearly and did not mention that I were interested mainly in **non-repayable loans with interest but finite term**.

And username_1 is perfectly right that this is just **partial pay back in rates**.

We then may compare (in order of "generosity")

* full pay back at once with interest
* full pay back in rates with interest
* no pay back with interest (no maturity date = perpetual bond)
* partial pay back at once
* partial pay back in rates
* no pay back without interest (= gift)

In the partial cases you don't need interest but can subsume it in the part to be paid back.

So the answer to my question is: This kind of interest-only loans is essentially to be called "partial pay back in rates".

On the market partial pay back doesn't play a role because its definitely a (partial) gift (the rest that doesn't have to be paid back) and gifts are not made on the market, right?

But partial pay back in rates may be a tool of state subsidy.

> **Comments:**
> **username_3**: So when you say "pay back in rates" it means there isn't a date where you pay the principal but you make interest payments in perpetuity? In that case, how can it be partial? Wouldn't the payments eventually add up to more than the loaned amount since you pay forever? Or am I missing something?  

---

