A balloon mortgage loan has a note rate that is fixed for a specific period of time in the beginning of the loan term. After the loan term expires, all of the remaining principle balance is due. At this point, the borrower has the option or refinancing the remaining principle, or paying off the entire balance. There is no penalty for a borrower that wishes to pay off a balloon mortgage early, and they may refinance the loan at any point during the loan term. Typically, a balloon mortgage loan has a term of either five or seven years. If you had a seven year balloon mortgage with an interest rate of 7.5%, your rate would be the same for the full term of seven years, but at the end of that term, the entire principle balance would be due.