Is it a good idea to get a Balloon or an Adjustable Rate Mortgage (ARM) if you plan to stay for less than 5 years?

Opting for a Balloon or an Adjustable Rate Mortgage (ARM) when planning to stay in a home for less than five years is not typically advisable. These types of mortgages often come with lower initial interest rates, which can seem attractive for short-term living situations. However, they carry inherent risks that can lead to significant financial challenges.

Balloon mortgages typically require a large payment at the end of the loan term, while ARMs can adjust to higher rates after the initial fixed period concludes. If you're planning to move before these adjustments potentially increase your payments significantly, you might find yourself in a difficult situation. There's also the possibility that selling the home might not yield enough profit to cover the balloon payment or the potentially higher payments from an ARM.

By choosing a fixed-rate mortgage instead, one can secure a stable payment and avoid the risks associated with variable interest rates and large final payments. This option ensures that budgeting is clearer and can lead to more financial security over the course of your stay in the home.