interest only mortgages are exactly what they say... you only pay interest every month, and don't pay off any of your capital.

Obviously, your interest payments will be lower than if you are paying off capital each month.  In fact, in the early period of any mortgage you're paying mostly interest anyway.  Only later in the mortgage (e.g. 15 years later) are you starting to pay off a significant amount of capital.

Who should take an interest only mortgage ?  If you want to keep your payments to an absolute minimum, then interest only may be for you.  There's often special deals on interest for new mortgages.  You can get a discount interest rate for a certain period, before reverting back to standard rate.

However, if a lender gives you a special deal, then they're sure to have some kind of lock-in.  Basically, you'll get a low interest rate for a couple years, but then you revert to standard.  But there's a penalty if you repay early !  Could be as much as 3 % of your total loan.  So, careful if you're thinking of moving, or your jobs insecure and you have to sell.

Main disadvantage of an interest only mortgage is the fact you don't make any capital repayments.  You need to make separate arrangements to pay off your total loan at some time in the future (maybe 25 years later).  Usually, people plan to make separate investments in endowments etc. to produce a lump sum when it's time to payoff that big loan.

So interest only mortgages have many benefits, but be aware of some of the drawbacks.