When Interest-Only Mortgages Make Sense

While the credit and housing crises make risky mortgage options much less appealing, there are times when a less traditional mortgage might be right for you. One of those is the interest-only fixed-rate mortgage, or FRM.

Interest-only FRMs allow you to cover just the interest charges on your mortgage for the first five to 10 years. After the initial period, principal payments get added to your monthly amount as you amortize your loan over the remaining term of the mortgage.

The interest-only FRM is potentially a good choice for homebuyers who have unpredictable income -- freelancers and people who work on 100% commission, for example. During the months in which your income is higher, you can make additional prepayments that will help pay down the principal. In months when you don't make as much, you can make a lower payment. ...