With an adjustable rate mortgage, you pay according to an interest rate that changes from time to time. Don t think this is some free lunch or gift of gratitude from the lender. One of the real reasons for the teaser rate is to allow one to qualify for a larger mortgage. During economic times when too many of these mortgages are going into default, expect lenders to use the projected cost of the loan in it s second year to determine the amount of loan you are qualified to take. The 3 and 5-year adjustable rate mortgages adjust less frequently.
Balloon mortgages are mortgages that are based on a fixed rate for the specified period of time.
These rates are often lower than the fixed rate mortgages because of a lower risk margin for the lender. At the end of the fixed rate period, the mortgage becomes due . You can generally continue the mortgage beyond the balloon period at whatever the current interest rates are at that time. But be careful. Read the fine print.