What is a "balloon payment" provision?

What is a "balloon payment" provision?

Ron Goodlin (Mortgage Banker and Broker, The Goodlin Group) gives expert video advice on: Is it possible to pay off my mortgage loan early?; Is there a penalty for paying off my mortgage loan early? and more...

A balloon payment provision is not really that prevalent nowadays. Say five years ago we met and you got a $3 mortgage, but it was a five year balloon and today it expires. You need to come up with $3, because its now due. Balloon payments are there for a period of time but then you have to make that full payment back to the bank when its due. Nowadays, we have what's called a five year fixed, but its amortized over thirty years and instead of it ballooning on you after five years it will just adjust for every year, which is called margin plus index. You won't have to all of a sudden pay all that money back. It'll turn into an adjustable instead of a five year fixed.