Balloon loan versus an adjustable rate mortgage There are pros and cons of both balloon loans and adjustable rate mortgages. At the end of the term of this loan there will be a sum of money that needs to be paid. You are going to find that the majority of balloon loans go on the assumption that the loan will be paid off over a time of approximately 30 years. At the end of about 5 years you will have to get a new loan to pay off the balloon that is left over. This of course is going to cost you some extra money because there will be many fees attached to the new loan just as there were to the first. An adjustable rate mortgage loan is completely different. Your interest rate will be adjusted according to the current market. The contract that you signed the first time will remain in affect and you will not have to pay any more fees, ever. This is a nice option because with an adjustable rate mortgage you always know more of less what you are getting and they are much easier to deal with. You will of course have to pay some settlement fees if you ever want to refinance your loan but if you stick with the original loan you will not. One of the other favored aspects of an adjustable rate mortgage is the fact that the rate is generally lower at the beginning of the term than the balloon mortgage. And when you have chosen to go with the adjustable rate mortgage you will be protected by the adjustment rate cap and the fact that there is a maximum amount that the loans interest rate will ever get to. If you had a balloon loan the rate would go up and up and up. Yes, this is great in case of the market going up suddenly you will be paying more once the interest rate has been reset when compared with the rate of a balloon loan. SO after the first five years you could save money with a balloon loan. You see adjustable rate mortgages get people interested by having such a low initial rate but after the first part of the loan the rate will rise significantly where as with a balloon loan this is not the case. It all comes down to the amount of time that you plan on holding onto your mortgage and the market when you are looking for a loan