Whether you are buying a house or refinancing your mortgage, this information can help you decide if an interest-only mortgage is right for you. This type of mortgage can be complicated. If you do not understand how it works, you should not sign any loan contracts, and you might want to consider other types of loans.

Interest-Only Mortgages allow you to pay only the interest on the money you borrowed for the first few years of the mortgage (the "interest-only period").

• You will still owe the original principal amount you borrowed.
• Your monthly payment will increase because you must pay back the principal as well as interest. Your payment could increase even more if you have an adjustable rate mortgage ("ARM") and interest rates increase.

• Home Equity - If you make interest-only payments, your payments are not building home equity. This could make it harder to refinance your mortgage or to obtain funds from selling or refinancing your home.
• Prepayment Penalties - Some mortgages require you to pay a lump-sum prepayment if you sell your home or refinance during the first few years of the loan. You should find out if your mortgage has a prepayment penalty, how it works, and how much it could be.
• No Doc/Low Doc Loans - "Reduced documentation" or "stated income" loans usually have higher interest rates or other costs compared to "full documentation" loans that require you to verify your income and assets.