Most balloons have a term of 5 to 7 years. This type of loan program is popular with sellers whom may opt to "carry back" a portion of the equity between the sales price and new loan amount. Commonly used in a second mortgage position, it usually carries a 3 to 5 year "call" or maturity.

Some times, these seller financed second mortgages are interest only loans with no principal payment due until the balloon becomes due. Some savvy buyers take advantage of this mechanism to acquire property with little or no money down from sellers willing to finance the purchase.

Balloon mortgages can offer a feature that allows the borrower to convert the balance due at the end of the balloon period to a fully amortizing loan but at current interest rates.

The secondary market purchases balloon mortgages. The balloon loans are aggregated with other loans having similar characteristics such as rate, term etc., and these pools are converted into mortgage backed securities and bonds. The securities are bought by investors that acquire other capital market investments  such as corporate bonds or U.S. government securities.

Generally, the yields on balloon mortgages follow  the maturities of other capital market debt instruments and  interest rate indicators.  The interest rates are generally lower on balloon loans than 30 year fixed mortgages because they are considered short term debt instruments.