Somehow, I don't think we need to worry too much about interest only loans. They have become rather expensive lately. In fact, rates on interest only loans are almost the same as on 30 year fixed rate mortgages

However, go back to 2003, and interest-only loan rates were below 3.5 percent. Moreover, there was a significant spread relative to fixed rate loans - at times, the spread was 150 basis points. As the housing market wobbled and then crashed, that spread has declined. Today, there is little advantage taking on an interest-only loan.

Just one more reason why the housing bubble is over.