Homebuyers who choose balloon mortgages instead of fixed-rate loans are saving hundreds of dollars a year, according to a study by Freddie Mac.

Freddie's mid-August survey of about 90 lenders found that 63% were offering seven-year balloon mortgages and 53% five-year balloons.

The five-year product provided homeowner savings of $457 a year; the seven-year version, about $278.

Balloon mortgages usually require a 10% down payment and have a 30-year amortization.

Interest is growing in these mortgages because of rising interest rates.

In July balloon mortgages accounted for only slightly over 1% of mortgage applications, Freddie said.

The company said it bought $2.5 billion of balloon mortgages in 1998, about 17% of the balloon market.

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