Interest Only Mortgage

With the interest-only mortgage, borrowers only pay interest for the initial five- or ten-year period. After the initial period, the borrower either pays a balloon payment for the remaining balance of the loan or the payments increase to pay off the principal within the remaining period of the loan.
Pros:
- Pay only the interest on the loan in monthly payments
- Don’t suffer when the market rates rise
- Predictable P&I payments
- Lower monthly payments
Cons:
- After initial period, the balance of the loan is due
- Don’t benefit when market rates fall
- Initial rate may be higher than ARM
- Must refinance, renew, or repay early
- No debt reduction through amortization