Buying one's own home has long been the American dream, and first-time homebuyer Emily Duffy describes the feeling.
"It was absolutely exhilarating," she says. Duffy and husband, Marc, "walked in with the keys. We looked at each other. He picked me up. It was magical -- just knowing we didn't have to be concerned about a landlord anymore. It was our place."
The South Boston couple wanted a home after the birth of their son. Michael. With more than $130,000 in student loans, they couldn't afford their $300,000 condo with a traditional fixed-rate mortgage.
Instead, they chose an interest-only loan. That means no money down, and for the first few years, smaller monthly payments.
Marc Duffy thinks it's the best decision they could have made considering all their expenses.
"Paying off the interest instead of having to contribute toward a principal and a 30-year fixed, it really provides the flexibility that we need right now," he says.
But there are risks involved. Eventually, interest-only loans revert to higher monthly payments as borrowers start paying off the principal. Homeowners are not building equity in the first few years. So if they want to sell and home prices go down, they have to make up the difference.
"To a certain extent, it's very much a gamble," Marc acknowledges, "but it's a calculated risk that the market does not fall beyond a certain point, if it does fall at all."
The Duffys aren't the only people taking that risk. In some of the hottest real estate markets, as many as 70 percent of new loans are interest-only. That's helping drive up real estate prices that are at a record high.
Economists say a growing dependence on these loans could mean trouble for the housing market.
Robert Shiller, an economics professor at Yale University, famously predicted the stock market collapse in his book "Irrational Exuberance." In the second edition, he now expands the book to cover other markets that have become volatile, particularly the red-hot housing market.
"The worry is that people have pushed too far," Shiller says. "They bought a house that they really cannot afford once they have to start making the principal payments on it, and so that will eventually come to roost. And people, they may default on their mortgages, and they might be under great stress."
Mortgage lenders, who can profit greatly from these loans, argue they can be a sensible choice -- sometimes.
"There are a lot of people, especially in urban areas, where they only expect to be in the property three to five years," says Rick Fedele, president of Summit Mortgage in Boston. "They're saying, 'Hey, why should I take a 30-year [fixed-rate mortgage and] make principal and interest payments when I'm only going to be here three to five years; let's keep my monthly mortgage payment as low as possible.' "
Marc and Emily Duffy are confident they will be able to buy a new, larger home within five years -- and that they'll be able to hold onto their slice of the dream.
Gigi Stone originally reported this story for "World News Tonight."