Sure they sound good, they even look pretty good on paper but according to the Refiadvisor mortgage blog, interest only mortgage loans are a big risk. Plain and simple, many home buyers fall prey to this type of financing because not only is it easier to qualify for but because the payments are lower than a traditional 30 year fixed rate mortgage.  What happens is, homeowners get in the habit of only paying the interest and when the interest only loan period ends they are unprepared to make the payments when that interest rate suddenly goes up.

The risk of losing your home with this type of mortgage is all too real.  The foreclosure rate is the highest in the nation that it has ever been. Banks can’t even keep up with all the homes that have come back to them.  According to Ben Jones at The Foreclosure Report Blog,

"Among reasons for the growing number of foreclosures is that home
mortgages have become a lot easier to get. Not only are terms more
generous, as with interest-only and adjustable-rate loans, for example,
but qualifications for buyers are less stringent. Lenders often have
not required savings or down payments. They have made a record number
of ‘subprime’ loans to borrowers with spotty credit histories."

If that’s not enough to keep homeowners making at least some sort of principal payment on their mortgages, I don’t know what is. The good news is, banks don’t want to loose your money or their money for that matter. With the foreclosure rate mounting, it does appear that lenders are taking a more active role to make deals and payment plans that can help the homeowner get back on track.