No Interest - No Deal

With the recent surge in real estate prices, many buyers have taken to investing in homes with interest-only mortgages. This enables many home buyers to purchase a home larger than they can necessarily afford as the monthly payment is much lower than one that is principal and interest combined.

In the hands of an informed buyer this can be a lucrative way to make money – buy low and sell high, thus making a substantial profit off of the sale of the home. However, for those who are not necessarily looking to sell, this could end up being a nightmare.

If the bottom drops out of the housing market, they could end up owning a home that they cannot afford, and owing more on it then it is worth. Also, if they do not plan for the eventuality that their loan principal will eventually need to be paid, they can find themselves in a financial bind.  ■