A balloon payment is when the mortgage becomes due. An adjustable rate can reset and go higher. The adjustable rate increases interest payments. A balloon payment includes a large payment of principle. I hope this answers your question. Thank you.

A balloon payment mortgage loan has a term (length) such that when the payments are made in the amounts specified and at the times specified, at the end of the term there is a considerable balance that has not been paid off and is due immediately.

A balloon payment mortgage loan can have any interest rate; it could have either a fixed rate or an adjustable interest rate.

The lender may extend the term of a balloon mortgage loan, usually for just a few years at a time with a "balloon payment" due at the end of each extension. Usually an extension has a different interest rate in which case the balloon mortgage loan resembles an ARM. However the lender can choose not to extend the term.

What we think of when we discuss ARM's is a mortgage loan whose term is long enough (in years) that the last payment is not substantially larger than the regular (monthly, etc.) payments. The payments do change in amount because the interest rate changes.

Usually a balloon mortgage loan is disadvantageous compared with non-balloon (fully amortizing) mortgage loans. But in a few instances, for example if a homeowner is sure he is going to sell the house and move after a few years and also the loan interest rate is more favorable, a balloon mortgage may be desirable.

A mortgage that has a balloon payment is a mortgage where the amount you pay to the bank does not cover the cost of the loan, so that at the end of the loan, you have a large or really large payment due, called a balloon payment.

A mortgage with a balloon payment really isn't related to an Adjustable Rate Mortgage (ARM) except that they are both types of loans.

An ARM just means that the interest rate that the bank charges you can go up or down, depending on whatever bank rate your interest rate is based on. Often ARM interest rates are based on the 11th district cost of funds or the 12 month LIBOR rate.

An ARM might be good if you are going to move and want to have low payments for a few years, because often, ARM mortgages have a fixed low rate for a few years, then become adjustable rate.

A mortgage with a balloon payment might be good for the same reason - lower payments than a fixed rate, but then you have to pay a large lump sum at the end.

If you have the option, a 30 or 15 year fixed is better if you like to know what your mortgage payment will be and you don't like the whims of the interest rate market dictating your mortgage payment.

If you KNOW that you are going to move, then an ARM or mortgage with a balloon payment will allow you to have a house with low payments, and then you'll have to sell -whether the value of the house has gone up or down.

My advice would be to rent instead of obtaining a mortgage with an ARM or with a balloon payment. The risks are not worth the chance of making money on that kind of deal. The odds are all with the bank. The closing costs will take out a huge chunk of any money you would make on the house on the off chance that the value goes up.