If you expect your income to increase a fair amount over the next few years, or you do not plan on staying in your house for very long, a balloon mortgage could really help you out. With a balloon mortgage, your payments are lower than what you could normally get for the first 5-7 years. Your lower interest rate is fixed during that time, so your payments stay the same. However, after about 5-7 years, you would either need to refinance, or get a new mortgage loan. By then, interest rates could be higher, so it is a risk. However, if you expect your income to have increased by then a fair amount, then chances are high that you would be able to afford the higher payments once your balloon mortgage term expires.
There is no guarantee, however, how much higher your payments will be once you refinance or get a new mortgage loan. Chances are, your payments will be higher since you most likely will not be able to find an interest rate as low as what balloon mortgage loans offer, however, you may get lucky and not have your payments be too much higher due to interest rates having dropped since then. If you are really unlucky, however, payments could be a lot higher due to interest rates increasing quite a bit, and possibly your income not being as much as you thought it would by that time either. If that happened, you may not be able to afford payments on a new loan, or by refinancing your current loan. If this happens, you risk being foreclosed on.
Even if you plan on moving before the term of the balloon mortgage loan expires, if the housing market drops so much that you cannot sell your house due to losing too much money, you would have to try either refinancing or getting a new loan. If the new payments are unaffordable, you would also risk foreclosure. So, although balloon mortgage loans can really help you to be able to afford the house you want right away, the risks must be weighed to see if they pose a great enough threat to make a balloon mortgage loan not a good deal for you, or a good deal.
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