"What if rates are already at fourteen percent when you go to get your mortgage?"
"In that case, I would take an adjustable-rate mortgage, hoping rates would go down," Roy answered thoughtfully "But you said it's impossible to predict rates."
"I also said 'hoping,' not 'predicting.' If rates stay at that level for any significant period of time, you'll have bigger problems to worry about than your mortgage . . . like the guys with the guns on your front lawn. Certainly, the level of interest rates at the time you select your mortgage will play a part in your decision but, most of the time, I'd advise selecting fixed-rate.
"By the way, a number of experts disagree with my opinion on this matter, so you should decide for yourself."
"I agree with Roy," confirmed James Murray. "There's something about locking in costs that I find attractive."
"Any questions?" Roy asked as he brushed off Tom's shirt.
"Are balloon mortgages different than adjustable mortgages?" I asked.
"Very definitely," said Roy. "Balloon mortgages are popular in some areas today, but they are not a good idea for most people. Balloon mortgages are amortized over a thirty-year period, although they are established to last a shorter period of time—say five or seven or ten years. Unlike an adjustable mortgage, where the interest rate is adjusted at the end of the set term, the balance—or balloon payment—of a balloon mortgage is due when the term is up. Since it is amortized over thirty years, most of the payments in the early years represent interest instead of principal, and the balloon payment is usually not a whole lot less than the original loan amount.