Because property tends to increase in value over time, paying down equity is not a concern for some buyers. East Oahu Realty

"The savings allowed us to afford a home in Hawaii," says Amber, a 31-year-old graduate student. She and husband Marc, a 41-year-old Marine lieutenant colonel, weighed all their options and decided against a 30-year mortgage because it would have reduced the loan amount for which they could qualify.

"We also knew absolutely that we would be selling the home and moving again before the ARM expired," explains Amber. "Once the ARM expires, our payment would jump at least 50 percent and possibly more depending on the current interest rate."

According to Rein Hollar, a mortgage financial consultant with Four Star Mortgage, the Sehrts are not alone in their financing choice.

"We're finding that when loan shoppers are properly presented with all their options, close to 75 percent of them are choosing interest-only mortgages," says Hollar.

There are a variety of interest-only products on the market today, but generally, these loans consist of interest-only payments for a set period, most commonly five or 10 years. During that time, the principal balance remains unchanged.

With their five-year, interest-only ARM, the Sehrts qualified for more buying power. They were able to purchase a home in Aikahi Park priced about $200,000 higher than what they could have qualified for with a traditional fixed-rate mortgage, Hollar explains.

"Being able to look at homes in a price range $200,000 higher can give you tremendous flexibility and choice," he adds.

More home is one of the reasons folks opt for interest-only financing, but there are other reasons, too. Paying off credit-card debt, covering home remodeling projects and investing for the future are other uses borrowers designate for the money saved each month.

But experts agree that discipline and planning are the keys to success with these types of loans. "The real key is determining what your overall financial goals are and where the mortgage fits in," says Hollar. "The interest-only mortgage, as any mortgage, should be part of your financial plan. It's not appropriate for someone wanting to save $400 a month on the mortgage just so they can go buy a car."

Hollar, who has been in the mortgage business for 16 years, says interest-only mortgage products are generally recommended for the following types of borrowers:

• Those who are just getting established in their careers and operating on a limited budget, but see the value of home ownership versus renting
• Those who would prefer to take the amount normally applied toward principal payment on their home and use that money for long-term retirement purposes
• Those with unusual expenses coming up that would adversely impact their monthly budget and lifestyle (i.e. private school or college tuition payments).

Meanwhile, interest-only mortgages are also very popular with investors.

"Many investors prefer these types of loans because they are normally concerned with cash flow instead of paying down equity," explains Hollar. "Fortunately, in today's real estate market, properties tend to rise in value and so an investor's funds are better utilized elsewhere as opposed to sitting idly in the bank as future equity."

On that note, Hollar says he believes those who don't comprehend the proper use of an interest-only mortgage, lack discipline and don't have a coherent financial plan may be better off with a traditional fixed-rate mortgage. He adds that 30-year fixed-rate mortgages are often viewed as a forced savings plan, which works best for some.

"You would unquestionably pay more interest over the life of the loan if you opted for an interest-only mortgage when compared to a 30-year mortgage. The key is using the interest-only loan for its intended purpose," says Hollar.

Most financial experts agree that the first step when shopping for an interest-only mortgage, as with all loans, is gaining an understanding of the product and comparison-shopping to minimize future surprises.

"Buying a home is probably the largest investment a homeowner will make, so make sure you go through all the disclosures in great detail and get comparisons from a couple of different lenders," suggests John Gray, executive vice president of Bank of Hawaii's mortgage banking division.

He adds that once the initial interest-only period is over, borrowers are likely to experience a fairly significant increase in their payments. However, for many it's not a concern.

"A number of people never even get to that point since they either refinance or renovate at that point in time," says Gray, adding that refinancing after the interest-only period is up is often a viable plan. "As long as property values are still high enough to refinance, that's the typical option."

Meanwhile, Amber and Marc are enjoying their new home and the money they're saving from their interest-only loan.

"The interest-only mortgage mainly allowed us to be able to afford the home of our choice," says Amber, who recently started graduate school at Chaminade University. "But the extra money has come in handy since the $14,000 we saved this year on mortgage payments is, ironically, what it will ultimately cost me to get my master's degree."