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What is the difference between an ARM (Adjustable Rate Mortgage) and a Balloon Mortgage?

April 26, 2017adjustable rate mortgage arm balloon difference mortgage

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What is the difference between an ARM (Adjustable Rate Mortgage) and a Balloon Mortgage?

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An ARM loan has an initial fixed rate period after which it adjusts (usually annually) according to an index plus a margin. The ARM loan has year to year and lifetime caps that provide the borrower with a predetermined maximum interest rate. The Balloon Mortgage is fixed for a preset time period (usually 5 or 7 years) and then either becomes due in full or may have a refinance provision. There is no rate cap guarantee associated with a Balloon Mortgage.