A Balloon Mortgage is a mortgage loan where the rate is fixed for a short period of time. Principal and interest is amortized over a longer term than the actual mortgage term itself. Also, Balloon Mortgages are available with as little as 5% down.
With a 5 year Balloon Mortgage Loan, the term is 5 years, but the payments are amortized over a 30 year term. Once the 5 years are up, you must pay off the entire balance of the loan or refinance for the remaining term of 25 years. Two common Balloon Mortgages are 5/25 and 7/23.
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