Balloon Mortgage

A balloon mortgage is a short-term mortgage. They work similarly to fixed rate mortgages with consistent payments, but payments are usually much lower because towards the end of the mortgage life a large balloon payment is due.

Pros:

Do not suffer when market rates rise
Predictable P&I payment
Lower interest rate than conventional loans

Cons:

If the interest rate falls, you could be stuck paying a higher rate
Initial interest rate is higher than ARM
May need to refinance to pay off balloon
Rates at payoff could be unattractive