High interest in interest-only home loans / POPULAR BUT DANGEROUS: If home prices flatten, borrowers could lose
Fred Pilot sent this. Astronomical housing prices have people stretched to the breaking poing...how to afford it? Interest-only loans, usually variable rate, that are extemely risky:

Two out of three Bay Area home buyers are choosing interest-only loans, and some experts warn that the popularity of the controversial form of mortgage debt is a sign that the overheated housing market is boiling over. These loans, which allow borrowers to avoid paying any principal for three years or more, have grown explosively in recent years to become the favored mortgage for buyers in the region, replacing the standby 30-year mortgage preferred a generation ago. They accounted for nearly 70 percent of home purchases in the first two months of the year in San Francisco, Marin and San Mateo counties, up from 18 percent in 2002 and 59 percent in 2004, according to data compiled for The Chronicle by San Francisco mortgage research firm LoanPerformance, a unit of title giant First American Corp... But housing experts warn that these loans are loaded with risk. Borrowers who put down small or no down payments and who do not elect to pay principal rely almost exclusively on price appreciation to build equity. If home prices flatten or fall, borrowers could end up owing more than the home is worth.