These should be spelled out clearly. At the end of this ten-year draw period, you would have another five years to pay any remaining balance. Watch out for negative amortization, which means that interest payments are too low to let you pay back the loan during its term. The balloon payment at the end could catch you off guard. If you can't pay or refinance, you may have to sell or face foreclosure.
Lenders currently add one to three points to the prime to come up with their index rate.
You must also be told about any annual or lifetime rate caps that apply. The index must be one that is out of the lender's control. Banks aren't allowed to use their own cost of funds as an index or change the index at their discretion. After you commit yourself, you have three business days to back out of the loan if your principal residence serves as collateral. The Kiplinger Washington Editors, Inc.