Balloon loans have become increasingly popular in recent years. For this reason, it is important to understand their features, assess their potential risks, and monitor their early performance. This article focuses on these topics. The first section discusses balloon characteristics and mortgage choice. The second section discusses expected balloon performance. The third section provides an econometric model for monitoring current performance. The fourth and fifth sections describe the data and results, respectively. The final section summarizes the article and offers some concluding remarks. The fundamental conclusions are that (1) early balloon performance is slightly v~rse than expected (i.e., balloons are not matching fixed-rate performance prior to balloon reset dates); (2) balloon performance is, however, within the range expected over the full term of the loans (i.e., performance worse than fixed-rate performance, but better than ARM performance); and (3) balloons have important characteristics that help mitigate systematic risk.Balloon loans have become increasingly popular in recent years. Freddie Mac purchases of balloon loans, for example, grew from fewer than 50 loans prior to 1989 to more than 225,000 loans in 1992 alone. This growth meant balloons eclipsed purchases of adjustable rate mortgages (ARMs) in 1992, and ranked only behind purchases of 30-year (FR30s) and 15-year (FR15s) fixed-rate loans.The impressive growth of balloons provides a strong motivation to fully understand the risks of this relatively new product, and to monitor the early performance of balloons to verify that they are performing as expected. This paper focuses on these topics. Our conclusions are that (1) early balloon performance is slightly worse than expected (i.e., balloons are not matching fixed-rate performance prior to the balloon reset dates); (2) balloon performance is, however, within the range expected over the full term of the loans (i.e., performance worse than fixed-rate performance, but better than ARM performance); and (3) balloons have important characteristics that help mitigate systematic risk.Six sections follow. The first section discusses balloon characteristics and mortgage choice. The second section discusses expected balloon performance. Section 3 provides an econometric model for monitoring current performance. The fourth and fifth sections describe the data and results, respectively. The final section summarizes the article and offers some concluding remarks.

Eight millimetre diameter angioplasty balloon catheters of both the Gruntzig and Olbert types from five manufacturers have been tested in vitro to establish bursting pressures and the changes in maximum and deflated diameters following repeated inflations, both when free and within a restraining sleeve. Maximum inflated diameters were within 10% of that stated and all types of balloon except one burst at a pressure greater than the recommended value. Deflated diameters were approximately 1 mm greater than insertion diameters, which are much smaller in the Olbert type. All balloons became a little larger with each of the first few distensions, and became stiffer. The maximum diameter was reached and remained constant after 10-15 distensions. Distension within a latex sleeve did not change bursting pressures, and it is considered that results from unconstrained testing can be extrapolated to behaviour in vivo. Computer modelling and calculation of maximum stress resultants also showed that calculated longitudinal and circumferential stresses are unaffected by applied restrictions. It is concluded that balloon technology is steadily improving and it is suggested that British Standards should be established for dilatation balloon catheters. Amongst other factors these Standards should include maximum recommended inflation pressures that are at least 2 atm less than bursting pressures, whilst the stated maximum diameter should be for fully extended balloons, and should have a tolerance of more than +/- 10%.