Pros and Cons of Interest Only Mortgages

[jeffrey]

Besides the lower amount you have to pay monthly, there isn't a whole lot that is positive about the Interest Only (IO) mortgage. That hasn't stopped people from staying away from them.

While nearly non existent 5 years ago, they now account for about a third of all new housing loans according to mortgage data firm LoanPerformance. In areas where the housing market is hottest, as many as 7 out of every 10 new loans are the interest only type.




While the lower rates allow people to afford more home that with a traditional mortgage, the low payments don't last forever. Eventually the interest-only mortgage will convert into a standard loan. Unless the loan is refinanced before the interest only loan converts, most people will see a huge increase in their required monthly payments.

For a look at the pros and cons of interest only mortgages, money.cnn.com currently has a good article on their site.

[tomkat]

Proceed with caution...I think this type of loan will be the financial undoing of a lot of people...may see a spike in foreclosures...those who are considering it had better be sure that they can handle worst case scenario as far as the monthly mortgage payment going up.

However, I've heard that this loan may not be a bad idea for investors who are into "flipping", or buying properties at reduced prices (such as a foreclosure) and selling them for a profit.