In one sentence
A span during which the borrower pays only interest, deferring principal amortization to later in the term.
The longer version
Interest-only periods lower early payments, improving cash flow when a property is stabilizing or a sponsor is executing a business plan. Full-term interest-only is common on lower-leverage institutional loans.
The tradeoff is a larger balance at maturity, which raises refinance and balloon risk that underwriting has to account for.
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