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Interest Only Loans

In the last few years, interest only loans have become popular. Borrowers have embraced these products mainly due to the lower payments associated with these loans. This is because your required payment is only interest, with no principle reduction being required . . . so, on a relative scale, your payment is lower. That's the good news.

The bad news is that you are not reducing your outstanding mortgage and are totally counting on appreciation for building of equity. However, the danger exists, particularly if you finance most or all of your home, to be "underwater" when you try to sell it. Also, most interest only products are ARM's, so you will start having a floating rate at some point. So, make sure to consider all of the pro's and con's of any interest only product you are considering before becoming totally enamored with the low payment.