Some people are buying their dream homes with a new type of loan.

Interest-only loans are a way to get access to a lot of money without having a large monthly payment. Experts warn consumers to beware because the loan can also be a fast track to foreclosure, WLWT-TV in Cincinnati reported.


Banks like Union Savings offer interest-only loans for as little as 2.99 percent for the first year, meaning if $150,000 is borrowed, the monthly payment would only be $400. With a traditional loan at 6 percent, borrowing the same amount would cost $900 each month.

So far, those who have taken advantage of interest-only loans say they made the right decision.

"It's wonderful. It frees up a lot of other things," said Ron Quatkemeyer, a loan customer. "If you want to do other investments or perhaps if you have children that are in school or going to college, it frees up quite a bit."

People who help others get out of deep debt say many will use the loan to buy a house they can't afford, which could lead to disaster if they face unexpected bills or their home doesn't appreciate as expected.

"Or else (they'll) find (themselves) at retirement and still have a mortgage to pay," said Barry Harsaran, a debt counselor.

Still, if consumers have the discipline to invest saved money, they could end up with more in the long run, and some say keeping a home mortgaged at the sale price isn't necessarily bad.

"It's our only write-off we have left, so why do you want to get rid of your mortgage?" said Elaine Blythe, vice president of Union Savings Bank. "It's the only good debt to have."

Experts want consumers to remember that the rates on interest-only loans change every year, but many come with the option of converting into a traditional loan without penalty.

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