Imagine being able to get a mortgage that significantly lowers your monthly payments or allows you to buy a much bigger home than you expected.

An interest-only mortgage can do both for you. On an interest-only mortgage loan, home owners need only pay the interest on the mortgage in monthly payments for a fixed term. After the end of that term, home owners can refinance or need to start paying off the principal.

Over the past few years, interest-only mortgages have been pushed aggressively by money lenders and brokers. But these loans are not for everyone. Financial advisers do not recommend interest-only mortgages for regular wage earners or individuals who earn money mainly through commissions. On the other hand, interest only loans are for disciplined investors who are bit of risk takers but confident that their investments will make money.

Like regular mortgages, interest-only loans come in many different forms. The interest rates on these loans can be fixed, usually for five, seven or ten years, or can be adjusted annually. With the adjustable rate loans, there are caps that can determine how much the interest can go up every year.  For the first few years of interest-only loans, home owners need to pay only the interest and can skip the principal. This significantly lowers monthly payments for the first few years but after the fixed period, home owners need to start paying back both the interest and the capital. This could cause the monthly payments to increase substantially.

 An example of payments on an interest only loan is as follows: A home owner with a 30-year fixed-rate loan of $100,000 at an interest rate of 6 per cent, on a regular mortgage will make a standard monthly payment of $599.56. However, on an interest-only payment, during the interest-only period, the monthly payments are only $500. Thus the interest-only borrower saves $99.56 every month for the first few years.

While interest-only loans may seem to be a good way of freeing up money for home owners, there are some serious risks involved in taking up such a loan. Home owners opting for interest only loans also lose the opportunity to lock-in today's low interest rates. The way that real estate market is spiking, home owners who are in the long haul may wish 10 years from now that they had locked into the low interest rates.

Among the risks of the interest-only loan is that the house will lose value or the borrower will lose a job. Both of these are serious risks that could jeopardize homeowners from realizing a life long dream of owning a home.