What is an interest only mortgage in laymans terms?

Answer 1

It's a home loan where instead of paying principal plus interest each month, you pay only the interest. Example: You borrow $100,000 for five years. At the end of the five years, after making payments each month you will still owe $100,000 (because you've only paid the interest on the loan.) People get interest only loans so they can afford a bigger house -- the payments may be $500 per month(or even less) instead of $750. But it's really not the best idea because if you keep getting interest only loans, you never own the house. An interest-only loan may be a good idea in some situations, for example if one partner is in college and you expect to have higher income when they graduate. If possible, it's better to get a conventional loan on a less expensive house, or to save at least a modest down payment(for a first home.)