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