When to choose interest only loans?

You should only choose the interest-only option on your mortgage loan if you need some flexibility in your payment amount from month to month.

It's becoming increasingly popular for lenders and mortgage brokers to advertise an interest-only option as way for you to get "more house for less money." Unfortunately, that kind of thinking can get you into some serious financial trouble. If you exercise the interest-only option, you'll eventually have to make up for all the months/years you weren't paying on the principle, and your payments will increase - sometimes significantly.

See, what most people don't realize is that using an interest only option doesn't increase the length of the loan. If you have a 30-year mortgage, and exercise an interest only option for 5 years, you then have only 25 years to pay off the principle instead of 30, which means your payments increase for the remainder of your loan.

An interest-only option is great for someone who works mainly on commission, like a salesperson. The option allows him or her to pay just the interest on a mortgage if he or she has a slower month, but not be charged a penalty or late-fee for not paying the principle. You should only choose the interest-only option if you need some flexibility like this in your payment amount from month to month.