The idea is to lock in a fixed payment as opposed to being exposed to rapidly rising rents. After the 10 yr interest only period ends there is a reset but the buyer speculates that his salary would have increased by then but rents would have also increased tremendously (especially considering rents have been increasing 8-10% annually in South OC). He also speculates that 10yrs is a long enough time to ride out any temporary dip in prices. In addition for buyers in the high tax bracket who itemize anyway to deduct state taxes, the deduction of the entire IO payment is attractive since you recoup 37% of the payment back (assuming no AMT issues).
Personally I don’t like IO but I can see how some loan officers manage to convince their customers with these selling points.
