I need a little input from anybody well-versed in mortgage structuring... I recently signed up for an 80/10/10 mortgage. The 80% mortgage is a 5/1 ARM at 5.125%, my caps are 2% annually or 11% over the life of the loan. The second (10%) loan is a 15 year fixed at 6.95%. My mortgage guy recommended setting the 80% loan up as an interest only so I can take the difference between a fully amortized payment and the interest only payment and apply it against the second loan (to get rid of the higher-interest balance faster). There's no pre-payment penalty to do this. Note that monthly cash flow savings are not the driver for the interest only structure. In fact, I've never heard of interest only mortgages until the banker brought it up. In essence, my total monthly payment will be the same as if I had two fully amortizing payments, it's just a matter of the loan to which the payments are applied. This just seems terribly complex. Has anybody had any experience with this? What are the drawbacks, watch-outs, risks, etc. to do this? It seems that this may be a good plan of action provided that interest rates stay below the rate on the second loan (6.95%), but that I may lose money if rates go above 6.95% after five years, correct? Any thoughts would be appreciated.