If you're like most people, when you first hear about interest-only mortgages you become uncomfortable, curious, and sometimes scared of the idea. These feelings are often due to misinformation about what these types of loans are really all about.

Here's where you can Compute Interest-only vs Conventional Payments

Simply put, an interest-only mortgage doesn't require any principal payment. Your monthly payment is just interest. So there's no equity build-up through making payments. The downside is if real estate prices "crash." Then you are "upside-down" until the recovery. And there's always a recovery, by the way. If history continues to repeat itself, it is always just a matter of time before prices go up.

Without paying down the principal, you wouldn't own your home free-and-clear if you were to own it indefinitely. However, you're not generally penalized for making extra payments, so you can pay down the principal as you are able, using the "interest-only" option as a safety net.

The upside is that your monthly cost is normally a few hundred dollars lower (depending on the size of the mortgage, of course). Equity is built up as the market increases, as it most often does. For landlords, cash flow out is lowered, with the tenants time renting builds equity. The best part is that you always have the option of making payments to your principal balance. You are in complete control over when and how much you want to pay down the balance. This makes it a great option for people who want more control on their cash flow.

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