Balloon mortgage is a mortgage type, which offers you low monthly payments for a period of five to seven years. At the end of this period you have to pay up the whole principal amount, else you have to reset the loan to the current interest rates. This is why balloon mortgages are also called as reset mortgages.

You can take up balloon mortgages if you can pay off the entire loan principal in a matter of five to seven years. The loan payments during this time period are based on a thirty-year amortization schedule. For example a 7/23 balloon mortgage means 7 years to make the complete balloon payment, which is the 23 years of principal amount.

The interest rate in balloon mortgage is also lower than what is seen in a fixed rate mortgage, plus you can borrow more than you can in a fixed rate mortgage. Finance companies that give balloon mortgages also offer you the option of refinance at the end of this terms period. This means the loan can be converted into an ARM with a variable interest rate. These features make balloon mortgages very attractive.