Interest only mortgage is the smart money management tool used by the lenders. It gives an option to the borrower, to just pay the interest instead of paying both interest and principal.

Key aspects:

These mortgages have lower monthly payments, which facilitates the qualification. But the lower payments do not last for always.

Here, the principal payments don't have to be made during the initial term of the loan, that doesn't mean they are forgiven.

Here, borrowers still owe all of the money they borrowed, plus interest at the end of the initial fixed rate period.

The property can be sold at the end of the term if the borrower is unable to repay the mortgage principal.

The balance size of borrowers mortgage will remain the same, and not be reduced at all as time goes.

As these mortgages delay the build up of equity, a borrower has to face huge losses in situations of falling home prices.