While this was briefly covered in the Introduction, it cannot be underestimated. There is really no such thing as an "Interest-Only loan." Rather, there are loan types ranging from Fixed-Rate to Adjustable-Rate, all with different features and ANY of these loans can offer an Interest-Only payment option. Yet many times they are all referred to I-O loans in the consumer market, causing mass consumer confusion.

For lenders, it's relatively easy to sell these products as the payments are enticingly low and consumers seem to believe that all I-O products are similar and acceptable. Therefore, many lenders solely advertise the catch-phrase "Interest-Only" when the more accurate and meaningful solicitation would include other important terms such as the Index the loan tracks, the Margin, Pre-Payment Penalties and more.

While there are now 30-year fixed-rate loans that offer an I-O payment option, most I-O loans are in fact Adjustable Rate Mortgages(ARMs). When it comes to ARMs, consumers lack the needed extra layer of knowledge in order to decipher the loan. To decipher ARM products, you need to first understand the basic Terminology of ARMs.