Is an ARM and a balloon mortgage the same thing?

Question

If not, what is the difference?

Answer 1

No. I'll keep this in laymen terms. They are totally different. An ARM is an adjustable rate mortgage. Essentially, your rate may adjust based on the market rate. typically, you see it advertised as 3/1 or 5/1 or 7/1. This means that your rate will be fixed for the first 3 or 5 or 7 years and may adjust each year after that based on whether or not interest rates are going up. Usually, there is a max cap as to the amount that will go up in 1 year and a max that it can go up for the full term. Read your documents and ask questions of the lender to make sure that you understand how your loan will work. Also, don't be afraid to ask the closing attorney. 2nd, the balloon is a pre-set amount that you will have to pay at the end of the loan term. You may be confusing them as both are used to reduce the amount of the monthly payments. The ARM reduces it because it usually offers a lower rate than a fixed rate mortgage. And the Balloon is lower because they've essentially taken a portion of your loan and placed it at the end of the loan. I hope this helps. If you're looking at a mortgage, make sure you utilize a reputable company that will tell you the truth and explain it in terms that you understand. Lower payments don't always make the best situation for you in the long term. I have utilized ARMs in the past, but only because I knew that I would be moving before the ARM had a chance to adjust. I would also stay away from the balloon. At the end of the term, you may owe a lot of money and depending on your cash flow....that could hurt.

Answer 2

ww has the answer you were seeking. Many mortgages were based in a person's ability to pay with the assumption that earnings and income would increase as years went on. So the monthly payments were set and the final payment would be quite large . Thus the baloon.

Answer 3

no. an ARM is an adjustable rate. the rates will go up or down, or stay the same each year. a balloon mortgage assumes [lower] payments for a period of time, with one lump sum payment at the end. consider what a balloon looks like.

Answer 4

No.  An ARM mortgage is an adjustable rate mortgage (ARM) and the rates can change at any time.  Many were lead to believe they could afford large, beautiful homes but in reality due to the ARM they are no longer able to keep up with the payments.  Do you studying if you are thinking of either of these.  BE SMART!  DONT FORECLOSE!