Interest Only loans provide a lower cost mortgage, since you only are obligated to pay interest each month. So the plus side is that you have a lower payment. But the down side is that principal reduction of your mortgage does not occur automatically each month, unless you pay an extra amount on top of the required mortgage payment.
While Interest Only loans are designed to give a homeowner a lower payment, they are not designed to stretch affordability or allow a buyer to buy a larger home while compromising his or her financial sanctity. These loans are simply designed to provide the option of a lower, interest only payment (without paying down the principal loan amount) but repayment is still inevitable since the loan will adjust to a fully principal-and-interest payment, after its initial ARM fixed period.
Most homeowners with Interest Only loans either refinance before the loan adjusts, or allow the payment to "float" during the adjustment period.
These loans have a bit more complexity, so please contact us today to learn more about the details of Interest Only loans.