What is a balloon mortgage?

A balloon mortgage is characterized by its structure, which includes a large final payment due at the end of the loan term. This type of mortgage typically involves smaller monthly payments that may not even cover the interest accrued, meaning that the borrower will owe a substantial amount as the loan reaches maturity.

The design of a balloon mortgage can appeal to borrowers who expect to sell or refinance before the large payment is due, thus allowing for lower payments initially. This is a distinctive feature of balloon mortgages compared to traditional loans, which usually have fully amortizing payments throughout the life of the loan.

Other options do not accurately describe a balloon mortgage. Some might suggest alternative structures, such as fixed-rate mortgages with no payments or short-term loans with different repayment plans, thus demonstrating the unique nature of the balloon mortgage's final payment circumstance.