Interest only loans are a dangerous practice disguised as a helping hand. A lender offers you a home loan, even a refinancing loan, in which you pay only the interest. While this can look like an attractive way out of a financial crisis, it is at best a short term solution and at worst a road to losing your property.
Your payments may be lower in the beginning, but eventually you must pay on the principal — the amount that you borrowed. At some point, often after three years, your payments increase dramatically or may even be due in one lump sum called a balloon payment. Often, people can’t make these increased payments and in many cases, they have trouble refinancing again for a more reasonable loan. People can lose their houses and have their credit destroyed.
Be very careful when considering an interest-only loan. If it is the only loan you can afford, chances are you can’t afford the home at all.