Explore the Mortgage101 Library
Check Local Mortgage Rates
Loan Program Choices
Use our calculator to find out your estimated monthly payment in advance: Enter the loan amount, interest rate, and length of mortgage.
Try our Mortgage Payment Calculator
Choosing between a balloon mortgage and an adjustable rate mortgage, or ARM, can be confusing. Both have pros and cons, so make a decision that not only benefits you now, but down the road as well.
Most balloons are fixed-rate, for a five to seven year loan term with payments based on a loan of 30 years. Once the term is up, you either payoff the loan, or refinance the balance. The initial rate is often lower than an ARM, which can make a balloon more attractive.
There are downsides to a balloon. If rates have risen since you took out the loan, you have to refinance at a higher rate. If your financial situation changed, or the home now has a loan-to-value ratio outside of the lender’s guidelines, you may have trouble getting your refinance approved.
An ARM loan usually ranges from one to seven years in length, and payments are based on a loan of 30 years. If you have a one year ARM, the rate adjusts up or down after one year. You can refinance to a fixed-rate loan if you decide to lock in the rate, or leave the loan as an ARM.
The downside to an ARM is if it adjusts higher, the payment can become unaffordable.
- 3 Common Short Sale Mistakes
- 3 Reasons Banks Reject Short Sales
- Alternatives to Getting a 2nd Mortgage
- How to Get Approved for an FHA Loan despite Bad Credit
- Second Mortgages: Advantages and Disadvantages
- Low Down Payment Loan Qualification
- 3 Factors that Can Negatively Affect Your Mortgage Application
- Short Selling a Rental Property
- Should You Refinance? Make Sure the Timing is Right