Before committing to a balloon mortgage, consider the following risks
Little to no equity in the house: With a balloon mortgage, you build little to no equity in your home while you make payments. This puts you at a disadvantage if you ever refinance your home or hope to make a profit when you sell. Dependence on the housing market: Balloon mortgages may make sense if you expect property values to go up. If home values drop, you may be upside down on your mortgage, owing more than the home is worth. Refinancing can be challenging: It may be hard to find a lender willing to approve a refinance, especially if your credit or income hasn’t improved. Can be hard to find lenders: Many lenders are wary of balloon loans because of their inherent risks. Lenders who offer balloon mortgages are likely to charge more in interest and fees. Foreclosure: Balloon mortgages are at a higher risk of foreclosure. If you can’t make the final payment at the end of the loan’s term, you will need to sell the home or face foreclosure. You should only agree to a balloon mortgage if you have a clear plan to pay it back.