Balloon mortgages, also called partially amortizing loans, offer monthly payments calculated as if the loan would be fully amortizing, but the entire principal balance will be due in a shorter time, usually five, seven, or ten years.
Commercial lenders will usually say, “I can offer you a ten-year loan on a thirty-year am,” meaning a ten-year loan but with monthly payments calculated is if it were a thirty-year loan.
Residential lenders usually call this a balloon mortgage. You can usually obtain somewhat cheaper rates with balloon loans than if you had a fully amortizing thirty-year loan.
Often, you have the option to convert the loan to a regular mortgage at the market rate for thirty-year loans, plus a little bit of extra interest, usually 3/8%. If you have a five-year balloon with a conversion option, the loan is called a 5/25 Convertible. For seven-year balloons, it is called a 7/23 Convertible.