Interest-Only Mortgages with an interest-only option allow you to pay only interest for a certain number of years. All types of loans (fixed rate, adjustable rate) can have an interest-only option. However, this can be a very risky choice. Many people like these loans because they have lower monthly payments in the beginning. While this is true, it is important to understand that your mortgage balance (also called the principal) never decreases if you only pay off the interest.

Your interest-only period will expire after a period of time (say after 10 years). Then your payments can jump up since you will have to pay off the full balance of the loan in 20 years instead of in 30 years.

The good news: This can be a good choice if you are know what you are doing and will be making more money in the near future (a few years), or you get big bonuses at the end of the year. The bad news: This is very dangerous if your income will stay about the same. Usually this is a choice for people making a lot of money. This information was provided solely by © Copyright 2001 - 2009 One Economy Corporation