Watch those interest-only loans

Walter Updegrave's “Ask the Expert” column on CNN Money has an article entitled

Starting with an interest-only loan

which is a response to a reader's question about — you guessed it! — starting with an interest-only loan with the purchase of a house. The reader is writing from Baltimore, which is a hot area for real estate, so I imagine it's tough to find anything decent on a normal person's salary, I can assume. (It's much like the area we're in right now — two hours away from Washington, DC, and we couldn't really afford to buy the house we're in now that we bought four years ago.)

So, yes, some areas of the country have ridiculous house prices right now, so people may only be able to get qualified to buy with an interest-only loan.

The article gives some advantages of an interest-only loan:

That lower payment frees up cash that you can use for other things. Or you can keep the payment the same size it would have been with a conventional mortgage and thus get a larger loan and a bigger house.

Thankfully, he also gets into a couple of the big disadvantages of IO loans, like

• Steeply increasing payments after the honeymoon period because you're amortizing the whole thing over a shorter period of time
• Possible interest rate risk if mortgage is adjustable rate

It's really hard for me to recommend IO loans as a decent option, for a couple of other reasons. All of the money going out in payments for the first 5, 7, or even 10 years goes into the lender's pocket — just like rental checks go into a landlord's pocket. But in addition to that, if you own, you have repairs, property taxes, insurance, etc. At least if you're renting you can move without too much ado at the end of your lease if the conditions get run-down or if the rent goes up too much. If you own, you have to sell the property — much more involved and expensive.