Rates on balloon loans are typically about one-half of a point below rates on standard mortgages because the lender knows it will get back all of its money within five or seven years instead of 30.
That’s because while a balloon mortgage might last only seven years, the payments are calculated using a longer amortization period of 15 or 30 years. Balloon mortgages are sometimes confused with adjustable-rate mortgages; however, they are very different.
What Is a Balloon Mortgage Payment? A balloon mortgage comes with an unusual twist. You make normal monthly payments for a set period of time (usually five to seven years) and then you have to make one large payment to cover the remaining balance of the loan.