Often borrowers are certain that they will be moving to a new home or refinancing their loan within a short period of time. Borrowers in this situation may be able to take advantage of a lower fixed rate by obtaining a balloon loan from LoanWorks.

Balloon loans have fixed rates and terms of 5, 7, or 10 years. At the end of the term, the lender may declare the loan due and payable. While the lender may offer a refinance option at that time, there is no guarantee that you will be able to refinance. When contemplating a balloon loan, consider the loan to be due and payable at the end of the stated term.

In most market conditions, rates for balloon loans are lower than comparable 30 year fixed rate loans. Despite the short term of the balloon, the monthly payment is calculated using a 30 year amortization schedule. Because the rate on the balloon loan is generally lower than that on a 30 year loan, the payment is also generally lower. So choosing a balloon program may enable you to qualify for a larger loan, and a larger home.

Balloon loans may be a good option for borrowers :

• Expect a large lump-sum amount of cash in the future.
• Anticipate substantial increases in income in the next few years.
• Feel that interest rates will decline sharply in the near future.
• Will be transferred to another area in a short period of time.
• Are anticipating retirement or relocation at a point in the near future.

As an alternative, you may want to consider the 3/1 or 5/1 Treasury ARMs available from LoanWorks. These loans are similar in that they offer a lower fixed rate for three or five years. At the end of that period, they convert to an adjustable rate loan. See the 1, 3 and 5 Year Treasury ARMs page for more details on these loans.