Balloon Loans
Balloon loans, also called bullet loans, are a special category of loans with a term of between three and seven years, but the payments are calculated on a term of fifteen years with the balance being due in one large payment at the end of the loan term.
This means that your payments are much lower than for a regular mortgage, but you must be prepared to pay off the balance. You can do this with cash, or by refinancing or converting the loan to a regular mortgage at the current interest rates.
Although lenders are usually required by the loan contract to refinance at the borrowers request, it is subject to many conditions and refinancing or converting the loan will require additional paperwork and settlement costs.
Many people will use a balloon loan when they are refinancing, or when they anticipate a major influx of cash in the future, such as from a settlement or inheritance.