Interest Only Loans

[Janice]

I saw on television that people in California and other states are starting to get interest only loans. Why would people go this route?

[gtalum]

They've been doing it for a few years in areas with high property values. It's a poor decision for buying a home you want to live in, but people do it so they can afford a house or a bigger, more expensive home. They were actually designed to be used only by "flippers" who want to buy a home and then sell it again in 6-12 months for a profit.

[nholley]

They can be useful in certain circumstances. My brother and sister in-law are looking at one. They have 4 kids and need a bigger house but their two youngest kids are not at school age yet. She could go back to work but everything she earned would go in childcare. So If they get and interest only loan until they youngest child starts school (in 4 years) they can get the house they need now and then re-finance when she is able to work again in 4 years.

For them it is ideal but personally for a house you plan to live in for an extended period it isn't such a good idea.