A balloon mortgage loan is a type of mortgage loan that has a short term (typically 5 or 7 years), but the monthly payments are computed using a 30 year term.

When a borrower uses a balloon loan, he/she will make the monthly payment for the scheduled loan term (5 or 7 years). When this loan term is over, the borrower is required to pay off the remaining balance in one lump-sum payment. Depending on the investor, some balloon notes have conversion features (for a fee) that the loan to be converted to a 30 year fixed rate mortgage.

We do not recommend balloon loans because they pose risk to the borrower at maturity.