The key disadvantage is that most buyers face refinancing when the balloon comes due. Much like hybrid ARMs, the balloon mortgage was designed for buyers who plan to move within a few years. Higher mortgages are called jumbo loans, with interest rates about a quarter-point percent higher than lower loans. Most lenders will allow a mortgage that is two to three times your annual pre-tax income. Points are paid at the loan closing.
Expert opinion is divided on the value of paying points.
Freeman-Webb's Cowan points out that it typically takes two to five years to recoup any money paid in points, but that the savings in lower interest payments can be substantial when the buyer keeps the loan for much longer. The money is usually better spent elsewhere. Suppose you don't live there as long as you thought you would. Paying those points did nothing for you. Smalling at NationsBanc agrees.