Interest-only mortgages can be very tricky

There has been a bit of a push lately by financial institutions aimed at getting consumers into interest-only loans and mortgages. Here are some points to consider if you are thinking about one.

Interest-only mortgages are loans in which you initially pay only the interest on the loan without paying on the principal, usually for the first five to seven years of the life of the mortgage. After that, you start to pay on a variable-rate mortgage.

At present, that rate is about 5.75 percent. Of course, it will not stay the same in that five to seven years, and will go up and down according to the market.

This type of loan can be tricky, however.

Yes, with an interest-only mortgage you may be able to afford a bigger and/or more expensive house, or the money you initially save by not taking out a conventional mortgage could go toward other financial endeavors, such as stocks or investments.

But if that endeavor happens to fall apart, the stock market drops or an unexpected financial burden comes along and you experience a sudden drain on your finances, you could be left in a rather unpleasant situation.

With an interest-only mortgage you may save a little bit of money in the short term but inadvertently dig yourself in to a financial hole for the long run.

These sorts of loans take a lot of discipline, and anyone considering one should seriously look at his or her spending habits, family obligations and financial risks to determine if it is the right path to take.

Any loan (or any financial endeavor, for that matter) should be entered into with extreme care and planning.

Crunching the numbers is a great way to start, but most important of all is being honest with yourself about your financial strengths and weaknesses.