Question:

How is a 7-year balloon mortgage different from a 7-year ARM?

Answer:

A 7-year balloon mortgage and a 7-year ARM loan have a lot of similarities. They have both fixed payments for 7 years and then have to be refinanced, or the rate adjusted. The 7-year balloon and 7-year ARM home loan may look very similar to the borrower, but they also have some very different features.

A 7-year Balloon Mortgage and a 7-year ARM Mortgage Compared

A 7-year ARM provides better inflation protection to consumers than balloons - ARMs usually have adjustment and lifetime interest rate caps.

A 7-year balloon home loan will require that the remaining balance of the loan is repaid in full after the 7th year, or the loan is refinanced. The 7-year ARM home loan payment will begin to adjust (most likely upwards) according to the mortgage agreement rules and many borrowers will not be ready to accept the increase in the monthly payment.

A balloon mortgage will have better rates compared to a 7-year ARM. The balloon loan will adjust to the current market rate, while with an ARM it will take years before the ARM rate reaches market rates.

If ARM interest rates are low after the 7 year period, the balloon mortgage has to be repaid in full or refinanced, whilst with the ARM program if market rates are at a low refinance won't be necessary.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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