As mortgage interest rates rise and home prices increase upward, some home buyers are turning to"Interest Only"mortgage loan. An interest only loan allows you to pay just the interest on the mortgage principal for a set period, often the first 5, 10 or 15 years. You don't have to pay principal during that time. When the interest only phase is up, the monthly payments jumps as you begin paying principal over the remaining term of the loan. Most borrowers expect to sell the house or re-finance the loan before the interest only period ends.
    
The main attraction of an interest only mortgage is the lower monthly payment. It is almost like renting a house since the borrower will not build up any equity in the home he is living in during the interest only period. Or, if the borrower is expecting more income in the future and wants to purchase the home now in anticipation of the higher income to come later, the interest only loan will give him the ability to live in the home until her realizes the higher income stream down the road. Or, a borrower may decide to play the market and hope to live in the home for a period of time and then sell it at a higher price, making a profit on the price of the home without ever having to pay any of the principal while living in it. this of course can backfire if the value of the home goes down. It is becoming something that borrowers and realtors are asking for, because it allows the borrower to afford more house. However, this too can backfire, if the value of the home goes down during the interest only period of the loan.
    
Some borrowers would rather place the money they would normally pay toward principal on a mortgage into an investment that they can earn a higher return on than the interest rate on the mortgage. As example, if your mortgage interest rate is 6%and you can earn 8% on a business that your own or invest in,than the funds you have available to you are better off in the 8% earning investment than paying off a 6% mortgage loan. After all, the principal payments you make on a mortgage are nothing more than forced savings into the equity of your home. If you can earn a higher return of those funds than the "interest only" loan may be right for you. Most interest only loan programs allow the borrower to make principal payments when ever he chooses to lower the principal balance of the loan. There are several "interest only" programs available:

- 3 yr, 5 yr, 7 yr, & 10 yr Fixed Interest Rate Loans.
  (Sometimes 15 years is available)
- Adjustable Interest Rates with 1, 6, or 12 month adjustment periods
- Adjustable Interest Rates with a Fixed Interest Rate for
  the first 3, 5, 7 or 10 years
- 100% Financing up to $5,000,000
- Primary, Secondary or Investment Properties
- Stated Income, No Documentation and Stated Asset Loans
- Some Cash Out Loans Available
     
Here are examples of the different monthly payments of interest only vs principal and interest mortgage loans: