loans are short term mortgages that have some features of a fixed
rate mortgage. The loans provide a level payment feature during
the term of the loan, but as opposed to the 30 year fixed rate
mortgage, balloon loans do not fully amortize over the original
term. Balloon loans can have many types of maturities, but most
balloons that are first mortgages have a term of 5 to 7 years.
the end of the loan term there is still a remaining principal
loan balance and the mortgage company generally requires that
the loan be paid in full, which can be accomplished by refinancing.
Many companies have other options such as a conversion feature
at the end of the term. For example, the loan may convert to a
30 year fixed loan at the thirty year market rate plus 3/8 of
a percentage point. Your conversion can be guaranteed based on
certain criteria such as having made your last 24 payments on
time. The balloon mortgage program with the conversion option
is often called a 7/23 Convertible or 5/25 Convertible.