A variable-rate mortgage that has a renewable short-term balloon note. Generally, the interest rate on this type of loan is fixed during the term of the note. However, when the balloon becomes due, the lender may refinance the mortgage at a higher rate. A balloon note gets its name from the fact that it matures during a short period of time. Because it was so short, there wasnÂ’t enough time to pay off the principal and a large payment must be made at the end of the loan, or it must be refinanced.