What defines a balloon mortgage?

A balloon mortgage is characterized by a large final payment due at the end of the loan term, which is typically shorter than a traditional mortgage. In this type of financing, monthly payments are usually lower and may only cover interest or a portion of the principal for the duration of the term. As a result, when the loan term ends, the borrower faces a significant lump-sum payment to satisfy the loan. This structure allows borrowers to manage smaller payments initially, but it also requires careful planning for the eventual larger payment to avoid potential financial strain or the need for refinancing.

The other options do not accurately describe the nature of a balloon mortgage. For instance, a long-term loan with consistent payments refers more to traditional fixed-rate mortgages, while a loan with no interest charged does not apply to any standard financing arrangements typically seen in real estate transactions. Lastly, a mortgage that does not require monthly payments contradicts the concept of a mortgage entirely, as mortgages inherently involve some form of payment structure.