Interest-only mortgages creep me out. You pay only the interest portion of the loan for a set period, then a new interest rate takes effect and you pay both principal and interest. Something that makes sense if you will pay down the principal using bonuses or whatever, or are a super-savvy investor and take the spare money and make it grow well.
On the other hand, in places like San Francisco, where houses are insanely expensive, this seems to be the only way for us middle-class folks to afford to buy a house there. Of course, I simply put forth that I cannot afford it and thus don't. But, there are others who do. To quote this entry at Forbes.com:
Ruth Hayden, a financial planner in St. Paul, Minn., calls the phenomenon "Yuppie Money," and warns against the temptation. "It's pretending you have more than you have," she says. "It's over-leveraging." But who wants to be the ant when the grasshopper lifestyle looks more appealing?
What's the moral of this story? When the housing market in CA and SF crashes, there will be many people who are just plain fucked. It will be like Houston in the 1980s when the oil industry crashed, and people just walked away from their houses (or moved out in the middle of the night), their credit ruined, and SOL on whatever cash they put down on the house.
