Balloon Loans

Balloon loans can have different types of maturity rates. The typical Balloon loan has a term of 5 to 7 years if it is a first mortgage. These loans are short term and do not fully amortize over the original term of the loan.

When a balloon loan comes to maturity, there is typically still a remaining balance to be paid off. At this time mortgage companies will require the loan to be paid in full. This can either be accomplished by paying the loan off, or by refinancing. Often, companies also have a conversion feature at the end of the Balloon term. One example of this would be if a balloon loan was coming up for expiration, the loan may convert to a 15 or 30 year fixed loan plus a percentage point in surplus of the loan. The balloon mortgage with a conversion option is often called a 7/23 Convertible or a 5/25 Convertible.