I am buying a new house.  The mortgage professional that I am working with gave me 2 recommendations (see below).  In this market, which one would you recommend and why?  Also, I plan to live in the house for quite some time.

a) 30-Year Fixed @ 5.00% for the life of the loan. 
b) 30-Year Fixed @ 4.50%, with a 15-Year Balloon.

If you plan to stay in the home for more than 10 years, I would take the 30 year fixed at 5%.  Who knows where rates will be in 15 years.  Do you want to worry about getting the balloon refinanced if you decide to be in the home past the 15 years?  Depending on your loan amount, I don't think the lower payment at 4.5% would be worth the worry.

If you are going to be in the house for more than 15 years, I would not recommend a baloon - unless you know you can pay the total debt in 15 years, and it makes sense for your long term financial planning goals - taxes, income - etc.

5% for a 30 year fixed is a pretty average rate - I would ask the Loan Officer if you could pay points to buy down the rate, essentially you pay a one time at close fee in advance to have a lower rate for the life of the loan.

Hope this helps.