"Balloon mortgage" was just a nickname they gave to ARMs at the time. In the US, 30-year fixed had been the bedrock of home mortgages for decades. Most home buy

"Balloon mortgage" was just a nickname they gave to ARMs at the time. In the US, 30-year fixed had been the bedrock of home mortgages for decades. Most home buyers didn't really know what ARMs were and brokers bent over backwards to misrepresent them. Many brokers also stopped offering fixed rate loans because ARMs paid out WAY higher commissions. There were a lot of lambos in Hialeah those years. Lenders were equally complicit in this mess. They were approving borrowers for obscene amounts of money by calculating qualifying amounts using ONLY the initial ridiculously low interest rate of the ARM. Thus, purposefully not accounting for the inevitable rate hike. Most lenders also looked the other way when brokers were very obviously fudging loan applications to qualify borrowers for more money. When those balloons finally popped (2-5 years from loan inception), home owners saw their monthly payment rocket up to unsustainable levels. This is what kicked off the wave of foreclosures (and why you often hear idiots, even right here on HN, blame the home buyers for the entire housing bubble). Then there was the whole bundling of these ticking-time bomb mortgages into securities that got magically AAA rated and pushed into people's retirement funds. And also how banks insured these shit securities to protect themselves from what they knew was about to happen. But that's a whole 'nother story that goes beyond the mortgage aspect of it all. Sorry for the history lesson!