A balloon mortgage is a mortgage that is not fully paid off through payments over time. Instead, a balloon mortgage may have payments over time (e.g., monthly or quarterly payments), but it is paid off at the end of its term with a one-time lump sum payment. The final payment at the end of the loan term is called a balloon payment. The monthly payments in a balloon mortgage are typically lower than a conventional mortgage and might be interest only.
For instance, lets say A loans $100,000 to B as an interest only balloon mortgage with a one-year term. Since the mortgage is interest only, B would be obligated to pay interest only payments over the course of the loan based on an interest rate agreed to by the parties. At the end of the loan term, B would owe all the principal ($100,000) in one lump sum.
Balloon mortgages typically have shorter terms and lower monthly payments. They are often used by borrowers who need quick cash and plan to sell the property or refinance in a few years.
For those who plan to use a balloon mortgage, be aware that balloon mortgages are governed by Florida Statute 697.05 (2025) and there is specific language that must be included in balloon mortgages. Florida Statute 697.05(2)(a)1 requires, with some exceptions, that balloon mortgages contain the following conspicuous language at the top of the mortgage and again immediately before the signature of the borrower:
THIS IS A BALLOON MORTGAGE AND THE FINAL PRINCIPAL PAYMENT OR THE PRINCIPAL BALANCE DUE UPON MATURITY, (Date of Maturity) IS (Balance of Mortgage Owed at Maturity) TOGETHER WITH ACCRUED INTEREST, IF ANY, AND ALL ADVANCEMENT MADE BY THE MORTGAGEE UNDER THE TERMS OF THE MORTGAGE.
If the balloon mortgage is for a variable rate mortgage, then Florida Statute 697.05(2)(a)2c requires the following conspicuous language at the top of the mortgage and again immediately before the signature of the borrower:
THIS IS A BALLOON MORTGAGE SECURING A VARIABLE (adjustable; renegotiable) RATE OBLIGATION. ASSUMING THAT THE INITIAL RATE OF INTEREST WERE TO APPLY FOR THE ENTIRE TERM OF THE MORTGAGE, THE FINAL PRINCIPAL PAYMENT OR THE PRINCIPAL BALANCE DUE UPON MATURITY WOULD BE APPROXIMATELY (Balance of Mortgage Owed at Maturity), TOGETHER WITH ACCRUED INTEREST, IF ANY, AND ALL ADVANCEMENTS MADE BY THE MORTGAGEE UNDER THE TERMS OF THIS MORTGAGE. THE ACTUAL BALANCE DUE UPON MATURITY MAY VARY DEPENDING ON CHANGES IN THE RATE OF INTEREST.
Note that if the above language is not included, then the borrower may obtain an automatic extension of the maturity date to the end of the amortization period. See Winner v. Westwood, 237 So.2d 151 (Fla. 1970).