What is The Riskiest Type of Mortgage To Get?
The two riskiest types of mortgages a borrower can get are Balloons or Interest-Only loans. With both of these loan types, the lender is given a short period of time where payments are very low and easier to afford. However, the interest-only loans also contain provisions that permit the lender to significantly increase the monthly payment amount, sometimes to amounts that are dramatically higher than what the borrower became accustomed to during the “teaser” period.
The balloon loans present an even more risky scenario to the borrower because the loan term is actually over within a few years of purchasing the property, and the monthly payments do not reflect the actual principal balance. At the term expiry, the entire balance of the balloon principal is due as a lump sum, which requires a significant outlay of cash by the borrower, or a new loan.
