Payment Shock
Categories: Banking
There are fixed loans, where you pay the same, boring amount every month. And then there’s the other loan-world, full of adjustable-rate mortgages, balloon mortgages, interest-only loans, and other not-fixed-payment types of loans.
If you took the more adventurous loan-road, then you might find yourself with growing payments...growing, growing, growing, like Jack’s beanstalk. This is when the payment shock can set in.
Payment shock is a risk that you need to know you’re signing up for if your loan isn’t fixed. Borrowers might get used to low payments and find themselves unprepared when payments go up in the future, leading to default.
Loans like balloon mortgages, which are guaranteed to have higher payments down the road, are risky. You’re betting you’ll have more income then, or else why not just get a mortgage with more consistent payments? Maybe you’re in medical school, and the market is looking good, so you’re pretty sure you’ll have the income to cover the higher payments when they come. But what if you’re at the top of your class at a great school, and the market has an oversupply of "yous" and an undersupply of the jobs you want?
Then you might find yourself in a Pickle Rick situation...shocked at how this could have possibly happened. But like Pickle Rick, you’ll figure out.
![](https://media1.shmoop.com/images/finance-glossary/electric%20shock.jpg)