October 29, 2006 - Understanding Shorter Term MortgagesLenders now offer mortgages that are blends of short-term adjustable rate mortgages (ARMs) and 30 year fixed-rate loans with a lower fixed-rate of interest for a period of five, seven or ten years. Be sure that you understand what happens at the end of the initial term before you sign on the dotted line for such a loan.
Many of these loans revert to a 1 year adjustable rate at the end of the initial term and can be adjusted once a year based on an index tied to the cost of money. You should know how much over the index your rate will be set and the limit or cap on how much your payments can increase.
A "balloon" note requires the entire balance to be paid to the lender after the initial period of the loan ends. These loans can help you buy a more expensive house, but ask for professional advice regarding the terms and the potential risks. | 
