What Are Interest Only Loans
Interest Only Loan: This loan is just as it sounds. Only interest is paid, so the principle (amount you owe) stays the same.
This type of loan started out as a loan designed for wealthy people who would rather invest their money in other investments than to pay down the principle on their loan.
Due to the increased values of property, this loan is being used by some people so they can afford to buy real estate or to buy a higher priced home. Interest only loans can be risky if the value of the real estate flattens out or declines.
Another risk, some interest only loans convert to a 30 year amortization after an initial period forcing the holder of the loan into a higher payment.
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