No, I would suggest you lend him the money at the prevailing market rate of interest and not at the AFR. In this manner, the IRS would not come back to you and say that you have lent your son money at below fair market value. The IRS would then assess tax on the additional income (difference between fair market value of interest versus the AFR rate) along with the applicable interest and penalties.
Yes, you can make an agreement, where you can require your son to pay you only interest for the 3 years and at the end of the term he would pay a balloon payment of the original loan amount.
Yes, you can type up an agreement that both of you could sign as long as the agreement covers essential language and specifically states the following;
a)an interest rate,
b)amount borrowed, &
c)terms of the repayment.