2  BIS Review 57/2006  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, for 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 result in negative amortization.