(FORTUNE Small Business) – You've probably heard the old advice about paying off your home faster by adding a little extra to each month's mortgage payment. For some small-business owners, a contrary strategy could make sense—lowering your house payments through an interest-only mortgage and freeing up cash for other needs, such as equipment for a growing business.

Jeff Chapdelaine, owner of a mortgage company and several rental homes in Colorado Springs, is trying the interest-only approach for the $175,000 home he and his wife bought in June. For at least the first five years, he'll pay only the interest due on a $150,000, 30-year adjustable-rate mortgage: $656 a month. That's nearly 21% lower ($172 a month) than what he would pay on a standard amortized loan. Chapdelaine, 43, will funnel that extra cash toward payments on another house, which he will rent out for income. In the sixth year the payments on his residence are scheduled to rise sharply to include principal. But Chapdelaine predicts, based on housing-price dynamics in his neighborhood, that the house will have appreciated by then and he will be ready to sell. "If I'm only going to live there for a few years, I'd rather have more money available to me—it's more cash flow to pay for a rental," he says.

Interest-only mortgages—which, like Chapdelaine's, typically convert to standard principal-and-interest loans after a few years—were relatively rare until recently. But consumers have become savvier about all the flavors of mortgages during the recent housing and refinancing boom. While no one tracks exact numbers, lenders at companies such as Merrill Lynch Credit Corp. and Washington Mutual report a surge in interest-only loans over the past two years.

Such a loan works well for established business owners who have inconsistent cash flow because "it allows them to pay principal when they choose or take the money they would have put toward principal and use it for their business," says Susan Freese, vice president of marketing at Merrill Lynch Credit Corp.

Both fixed-rate and adjustable-rate mortgages can be set up to require only interest payments, but expect to pay a rate about one-eighth to one-fourth of a percentage point higher than you would for standard loans. That covers the additional risk that the lender is taking on, because you're not building up any equity in the property. Also, if you're intermingling the balance sheets of your home and business, as many sole proprietors do, tread carefully. "If the business suffers a reversal, not only the business but your residence is at risk," says Doug Duncan, chief economist at Mortgage Bankers Association. While Chapdelaine strongly believes his property values will appreciate, he says he will keep a cushion of $70,000 in the bank and will refinance if he decides to stay in the house longer than five years.

Interest-only loans are probably a bad idea if you plan to keep your house forever, are close to retirement, or live in a neighborhood where home prices look likely to stagnate or decline. They're best suited to homebuyers who are sure they're going to move or are expecting to make more money before the interest-only period expires.

Need a mortgage? The initial payments on a $240,000 loan can vary widely, depending on how you structure it.

Rates as of Aug. 11, 2004. Source: Merrill Lynch