This house only $100 a month!Walther Updegrave of CNN’s Money warns people about the increasingly popular interest-only mortgage. Interest-only payments mean that you don’t have to pay off any of the principal. This means lower payments at the cost of building your home’s equity.
An IO loan lets you off the hook for principal payments only temporarily. Depending on the specifics of the IO loan you get, typically five, or seven or 10 years down the road you’ll have to begin paying off principal. The result is that your monthly payment can jump 40 to 45 percent.
You’re basically paying rent for the first few years when you’re not buying into your house’s principal. The only time an interest-only mortgage option is beneficial is when you use the extra monthly cash for good reasons such as paying off high-interest credit card debt or another investment that will give you higher returns.
Regular home-buyers need not apply.
Starting with an interest-only loan [CNN Money]
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