Rates on ARMs can increase. Chances are, you'll want to improve your credit and obtain a different loan before the two or three years are up. If you're trying to improve your credit in anticipation of refinancing for a lower-rate loan, consider avoiding these loans. Advantages Lower initial monthly payment. Lower payment over a shorter period of time.
Many balloon mortgages offer the option to convert to a new loan after the initial term.
Disadvantages Risk of rates increasing at the end of the initial fixed period. Risk of foreclosure if you cannot make the balloon payment, refinance or exercise the conversion option. No tax returns or W-2s. No proof of assets or ability to make down payment. No verification of income.