Kevin Duffy

Versus most 5-year-like products in the mortgage market today, the 5 percent rate on this bank’s balloon is actually a pretty decent rate.

But that doesn’t make it a good choice.

As a mortgage broker, I don’t often advise my clients to use the 5-year balloon mortgage because many Cincinnati homebuyers have an expected timeframe in their home of more than five years. 

The big question mark on 5-year ballooning mortgage products are:

What happens to the balloon mortgage when the 5 year balloon is over?

The answer is that it comes due in full when the initial loan term ends. 

This makes the balloon mortgage considerably more dangerous than a comparable adjustable-rate mortgage.  With an ARM, when the 5-year period ends, the mortgage payments may increase (or decrease), but they still stay within a pre-determined, well-contained range.

With a balloon, there is no new payment– the entire loan balance is due on the spot. 

The 5-year balloon rate of 5.000% is fine if the balloon product meets your needs.  Balloon products rarely do, however, so taking the 5-year balloon would be like going to Nordstrom’s in Kenwood (soon!) and buying shoes on sale in a size that doesn’t fit just because the shoes are “a good deal”.

The best rate on an ill-fitting mortgage product makes for achy feet.  Shop for a mortgage plan and a mortgage rate — it’s the best way to secure your long- and short-term financial goals.

This will be the most important (and untold) story in mortgage lending this year.