That depends upon your financial situation. Today, most buyers that use intrest only loans are buyers that can barely afford the payments during the grace period and have no idea how they will feed the monster after the grace period expires.
Is it a ticking time bomb to owe 400,000 on an 800,000 house?
No, but it is a ticking time bomb for those who bought at the top of the bubble and now owe 800,000 on a 700,000 and falling house.
It is a ticking time bomb for buyers who will be forced into foreclosure once the grace period expires.
Mortgage Foreclosures Up 72% Nationally
You talk about how you bought a second home and paid off your house in 15 years. You gave money to the bank you didn't have to give. Think about how many properties you could have had appreciating rather than giving money to the bank so you could feel like you were doing something financially sound.
And think of the money from rental income and mortgage payments that no longer had to be made that went straight into my other investments instead of going to the bank to feed the mortgages.
Think of the fact that, if I stopped working tomorrow, I could maintain my lifestyle for the next 30 years without worrying about foreclosures.
If you took out a conventional loan and paid PITI for 2 years, you'd pay mostly interest, as you do for about 11-12 years on any home loan. If you had a 100% loan and had to sell, you'd be in big trouble if the market was down.
Worse case: let's say you have an option ARM and are adding $5,000 a year to the principal because you are paying the lowest payment. In 5 years you would add about $25,000 to the principal. In that time, your home may have gone up 20%. A gain of 80,000 on a 400,000 home. The net: $55,000.
Even if you paid 20% down payment and the market went down and you had to sell in a short time frame, you may still clear some money on the sale.
If you buy and hold, the value will increase and you'd be well in the clear.
The difference is that you want to pay more to the bank, while I'd be buying two-three more homes.
I have four homes now with about 900,000 in equity. I could have paid off my one house and had $350,000.
I help people figure this out for a living and how to avoid being upside down. I know it works because I have done it personally and helped a few dozen others do the same thing.
It is an oversimplification to say that interest only should be for the wealthy. If the factors are right, anyone can reasonably take advantage of these loans and come out well ahead on their investment. That's what I help my clients figure out.