It's popular mortgage in US for homeowners who aren’t planning to stay in their new home for more than 5 or 7 years. The advantage is that interest rate is lower than a fixed rate mortgage however, disadvantage is that if you remain in home beyond 5 to 7 year term, you would have to secure a new loan or mortgage to pay off balloon mortgage.

Jumbo Mortgages or 'Non-Conforming' Mortgages:

In US, Congress has legislated a conforming limit to amount a mortgage is allowable for funding by Federal National Mortgage Association (a.k.a: Fannie Mae) and Federal Home Loan Mortgage Corporation (a.k.a: Freddie Mac). The 2005 limit is $359,650; $539,475 in Alaska, Hawaii and U.S. Virgin Islands.

Any loan or mortgage above that conforming limit is considered a Jumbo Mortgage. A Jumbo mortgage/loan allows you to borrow over conforming limit, but for that privilege, you will incur higher interest rates. There are variations to Jumbo Mortgage such as Super Jumbo Mortgage, but I'm sure you get basic picture.

Canadians have an equivalent referred to as a "High Ratio Mortgage" guaranteed/funded through Canada Mortgage And Housing Corporation (CMHC).

Now that you have identified which type of mortgage might suit you best, you need to consider repayment methods and you basically have two options:

Interest Only: An interest only payment method can be combined with any type of traditional mortgage. Interest only payment periods almost never run for entire term of loan, so prepare to have your payment rise to include both principal and interest once interest only period ends.

Principal and Interest or Capital & Interest:

Your monthly repayments are divided into an interest payment and a principal or capital repayment. In early years of mortgage period most of monthly payment is swallowed up in interest but over time balance reverses and you start to pay off more of capital or principal borrowed.

So Many Mortgage Lenders ... So Many Choices!

There are so many mortgage lenders offering such a variety of loan options that at first it can seem a daunting task trying to determine which lender most suits you and your circumstances!

It is important to note that as you shop for a mortgage, each lender will perform a credit check prior to committing to mortgage or loan. Each credit check remains on your credit record and could potentially reduce your credit score and eligibility for a mortgage or loan.

A Mortgage Broker might be an option for finding best deal for a mortgage but that's a topic for another time. (Words: 958)