Interest only loans offer flexibility. Your payment can be as low as the interest on the loan alone or as much as you are able to pay. They may allow an individual expecting income to increase substantially in a few years to buy the house they would have chosen at that point, rather than a starter home. An interest only mortgage may also allow a buyer in a rapidly appreciating market to buy when they expect to resell the home rather quickly. For a select few buyers, the benefits of an interest only loan may outweigh the risks.

Interest only loans come with substantial risks. These loans typically have a higher interest rate, as they are considered a high risk loan. Buyers counting on an increase in income in the future may find that the expected financial growth is not there, and they are left with more house than they can afford. Conversely, the home may not appreciate as expected, thus leaving the buyer lacking expected equity. Typically an interest only loan offers a period of five to ten years during which you can make interest only payments, but the interest rate may change during the term of that loan. Be very conscientious about the terms of any interest only loan you consider, and work with a reputable and responsible lender.

An interest only payment option may be best option for a buyer in a few situations, but this is rare. In most cases, the best solution is to buy a home you can afford, and pay it off in a typical and responsible manner. Equity in your home is a valuable financial asset, and one that does not accumulate in most instances if you have opted for an interest only payment option. Look at your finances, and prepare for any eventuality when you purchase a new home. Responsible home buying is consistently a better choice than buying more than you can comfortably afford.