Interest-Only Loan

For a period of time, you pay only interest, and do not pay down the principal.

Pros: If you don't plan to stay in a home long, you can buy something you ordinarily couldn't afford. If you are in a hot market, or a hot neighborhood, you'll have low payments while your house appreciates in value. You can always pay more on the principal while enjoying the low payments. One other great thing about an interest only mortgage is that payments made to the principal reduce your monthly payment. So, if you have a job that has a heavy non-scheduled bonus or commission  based compensation plan, you can pay the interest  every month and when you get your bonuses pay down the principle to reduce your monthly payment.

Cons: The day will come when you need to pay down the principal. If your home value has fallen, or your income decreased, you could have trouble making the new payments.  One strategy is to invest the difference between an interest-only loan and a fixed-rate loan to build up cash reserves. 

Watch out: If you can't pay interest and principal at the same time, chances are you can't afford the house. You can only put off the inevitable for so long: the principal has to be paid down. If you can't make payments, you could lose the house.  If you plan to sell your house and can't sell it for what you owe, you are in trouble.

Read more about Mortgage Types