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. Balloon loans do not have any prepayment penalties. Balloon loans are typically 5 or 7 years. Example: A 5 year balloon mortgage with an interest rate of 7.5%, your rate would remain constant for the full term and at the end of 5 years, the remaining principal balance would become due.