Balloon loans are loans that have a lump sum payment at the end of its term. Most loans are amortized over 15, 30, or 40 years. In other words, your monthly payment is set such that if you make your payment for 30 years, at the end of that time the loan balance would be zero. If however the loan is due after only 5 years, you will not have paid off the entire loan amount, but only a portion of it. At that point then, you will have to come up with a lump sum to pay off your lender, either through a refinance or from your own savings.

Who would want to live with that over their heads?? Someone with a solid job and qualifying easily can get rates that are even better than hybrid-ARM rates with a balloon loan.