Interest only payment options can apply to fixed-rate mortgages, adjustable rate mortgages, or option ARMs. As the name implies, you are able to pay only the interest portion of your monthly payment for a fixed period (usually three, five, seven, or ten years). At the end of the period your loan becomes fully amortized resulting in greatly increased monthly payments. The longer the interest only period, the larger the new payment will be when the interest only period ends. This type of loan requires some forethought. Can you count on your income to climb through earnings and are you committed to applying those earnings toward the principal? Will the increase in your earnings be enough to cover the forthcoming higher payments? Will the house you're considering drastically increase in value? Do you already have a significant amount of equity in your home? If so, this could be a very good program for you.

The program has several advantages. It allows you to pay small, interest only payments for a set time. For anyone with a well thought out financial strategy and temporary income limitations you can get more home now for lower monthly payments. The program also works well for those looking for the tax deductible benefits of a home mortgage—the entire monthly payment qualifies as tax-deductible interest during the interest only period. You can also make investments with the payment difference to potentially build your net worth.