Balloon Loan Programs

10 Year Balloon, 7 Year Balloon, 5 Year Balloon, 3 Year Balloon

Balloon loans are short-term mortgages that have similar features to a fixed rate mortgage. The loans provide a constant payment feature during the specific term of the loan, but compared to the 30 year fixed rate mortgage, balloon loans do not fully amortize over the original term. Interest rate and payment stays the same until the loan is due. Characteristically, the entire loan amount is usually due in 3 to 10 years depending on the program.

The remaining loan amount at the end of the loan term is required to be paid in full by the borrower, which can be accomplished by refinancing the loan. However, many lenders provide other options such as a conversion feature at the end of the term. For instance, in some cases, the loan may convert to a 30 year fixed loan at the thirty-year market rate plus 3/8 of a percentage point. The balloon mortgage program with the conversion option is often called a 7/23 Convertible or 5/25 Convertible.

Balloon type loan programs are usually recommended for borrowers who are certain that they will be leaving their current house or will have the funds to pay off the loan when the balloon payment is due.


  • One of the advantages of balloon loan programs is that they tend to have the lower interest rate and therefore lower mortgage payments for the balloon period.
  • Many balloon mortgages offer the option to convert to a new loan after the initial term.


  • The entire balance must be paid off or refinanced at the end of the term.
  • Risk of higher interest rates if loan is refinanced at the end of balloon period.
  • Risk of foreclosure if you cannot make balloon payment, or refinance, or exercise the conversion option.