Nontraditional mortgage products Over the past few years, the agencies have observed an increase in the number of residential mortgage loans that allow borrowers to defer repayment of principal and, sometimes, interest.
These loans, often referred to as nontraditional mortgage loans, include "interest-only" (IO) mortgage loans, on which the borrower pays no loan principal for the first few years of the loan, and "payment-option" adjustable-rate mortgages (option ARMs), for which the borrower has flexible payment options--and which could also result in negative amortization.