Ballooned Mortgage is a combination of fixed rate mortgage and interest only mortgage. This means that during the term of mortgage you have to pay only a fixed amount of interest on the loan amount. At the end of the tenure, the borrower has to repay the complete principal loan amount in one go.

Usually ballooned mortgages are of short term, i.e. 5-6 years. The lenders do offer the option of converting a balloon mortgage into the conventional amortized mortgage. The most attractive feature of this type of mortgage is that it is calculated like a 30 year fixed rate mortgage. For a balloon mortgage to be beneficial it is vital for the borrower to start planning for the repayment of the large principal amount well in advance or be ready to sell off the property.