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Balloon Mortgages

Balloon 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 a 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. At the end of the loan term there is still a remaining principal loan balance and the mortgage company may require that the loan be paid in full, which can be accomplished by refinancing.

Some balloon loans 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. The balloon mortgage program with the conversion option is often called a 7/23 Convertible or 5/25 Convertible.