**Balloon Mortgages**

Balloon mortgages have a note rate that is fixed for an initial period of time,
and then the remaining principal balance is due at the end of the term. When
the final balloon payment is due at the end of the term, the borrower can either
refinance into another mortgage or pay off the balance. The balloon loans do
not have any penalties for paying off the loan earlier than it is due. You would
be able to refinance the loan at any time during the term. The two different
terms a balloon loan can have are typically 5 or 7 years. For example if you
had a 7 year balloon mortgage with an interest rate of 7.5%, your rate would
remain constant for the full term and at the end of 7 years, the remaining principal
balance would become due.