5, 7 and 10 Year Fixed Balloon Mortgages from AFCU (private mortgage insurance, loan, interest rate)

[itsshanks]

We are a first time homebuyer and are in talk with builder to buy/build our house. We don't have 20% down payment to make but we can stretch it to 10%. The builder's company (NVR Mortgage) has FHA loan which has good interest rate but sure enough also has PMI and Escrow. The closing costs are also high when I compare it to fixed loan at Ascend Federal Credit Union (AFCU). However AFCU 15/30 years fixed mortgage interest rate is higher.

Now, AFCU also provides "5, 7 and 10 Year Fixed Balloon Mortgages" with a brief description below. From what I understand it has lower interest rate, has low closing cost (less than half of FHA) and also doesn't need PMI/Escrow. I understand that this loan will require refinancing (if I don't pay it off) which could mean higher interest rate than today's, at the end of 5/7/10 years. This could be a risk if we end up staying in the house more than 5/7/10 years period and if we move or buy another house, it may not be that big deal.

My question - Am I missing anything? Besides the risk of higher interest rate, is there any catch which I don't see?

Description from afcu.org
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Low fixed-rate balloon mortgages are available for both primary residences and second/vacation homes located within the U.S. Payments are based on an amortization schedule of up to 360 months with the balance due at maturity. Upon maturity or a drop in rate (for a small fee), the loan may be modified to change the rate and extend the term without the cost of refinancing. Certain limitations may apply. Members have automatic payment options such as payroll deduction or automatic transfer. Neither an escrow account nor private mortgage insurance is required for this loan type. The appraisal fee is collected at the time of the application. Low closing cost.