What interest rate is typically applied for interest-only payments?

Interest-only payments generally utilize a higher interest rate compared to traditional fully amortizing loans. This is because, with interest-only products, the borrower is only paying the interest for a set period, meaning they aren't reducing the principal balance during that time.

The choice of 4.75% as the applicable rate reflects a common range within the residential mortgage market for interest-only products, as it balances a competitive rate while accounting for the increased risk taken on by the lender. Interest rates can fluctuate based on market conditions, borrower creditworthiness, and other economic indicators, but options on both sides of 4.75% often wouldn't be representative of the average rate for this specific payment structure.

Given that 4.00% tends to lean towards lower fixed rates aimed at stable amortization, and proposals of 5.25% and 5.50% start pushing towards rates that would typically cover riskier lending scenarios or adjustable-rate products. Therefore, 4.75% stands out as a fitting midpoint that would realistically reflect the desired interest rates available for such an arrangement among lenders.