This type of mortgage is usually offered by builders and occasionally by individual sellers. The buyer makes an unusually large downpayment and then pays off the balance in monthly installments within a few years. Just as it’s named, there is no interest charged, however, the Internal Revenue Service will impute up to 10% interest in such cases. The result of good old Uncle Sam doing this is that the buyer is entitled to deductions for interest even though no interest is stated. Thanks so much Uncle Sam!
Builders and sellers offer such financing in desperation and invariably increase their prices accordingly. Such mortgages may not be much of a “bargain” if the price is substantially above what the builder would charge on a regular sale where you get your own financing.