Although a balloon loan and an adjustable rate mortgage can be tempting loan offers; before you sign up and move into the home of your dreams, consider what financial facts lie beneath the surface. The truth is: mortgage is the bottom line.  

An adjustable rate mortgage is always a tempting offer because lenders usually pull buyers in with lower initial interest rates and smaller initial monthly payments. Although this may seem like a smart finance or refinance plan for the buyer, the adjustable nature of the mortgage means the interest rate is apt to rise at various periods throughout the loan term, with no restrictions or ceilings. And with higher interest rates, comes higher monthly payments.

 Another alternative to an adjustable rate mortgage is a balloon loan. Balloon loans attract a certain niche of borrowers who only plan to own the property for a few years. When you utilize balloon loans, they typically mature in six years and are amortized over the course of thirty years. When balloon loans are mature, the borrower must pay the entire outstanding balance. If you choose to refinance with a balloon mortgage, you have the options to convert your loan into an adjustable rate mortgage or a fixed-rate mortgage at closure of the balloon period. When you convert to a fixed-rate, you get a stable interest rate based on the current market.       

  So, now that a few of the financial facts are on the table—how can you tell if a balloon loan or an adjustable rate mortgage is right for you? As a borrower, you should base your mortgage decision on your financial status. It is a good idea to have a consultation with a financial adviser to discuss your current finances, your awareness of fluctuating payments, as well as your projected future state of refinance.

 Another interesting way to decide if adjustable rate mortgage or refinance is right for you is to review what recently happened in the real estate market. 

California real estate experts relay some good news and some bad news. The positive is that there is no major price bubble in the housing market in California. However, the negative is that there is major concern that the adjustable rate mortgage is being severely overused. There is a high rate of people choosing to use an adjustable rate mortgage over a fixed-rate mortgage and balloon loans.

 As a loan converts to an adjustable rate mortgage, refinance options suffer the consequences. The high, inflated monthly payments associated with an adjustable rate mortgage do not lead to efficient or lucrative refinance situations for buyers. If buyers cannot afford to pay the sky-rocket payments, they will be forced to sell their homes, and will lose all refinance benefits.