What characterizes a balloon mortgage?

A balloon mortgage is characterized by a large final payment at the end of the loan term. This type of mortgage is structured in such a way that the borrower makes relatively small regular payments during the life of the loan, often covering only the interest or a portion of the principal. However, at the end of the loan term, the borrower is required to make a significantly larger payment that covers the remaining balance of the loan in full. This large final payment is typically referred to as the "balloon payment," which gives this type of mortgage its name.

In contrast, other options describe different mortgage structures. The first option refers to a fully amortized loan where payments remain consistent throughout the loan's duration. The third option suggests a loan with no required payments, which is not a feature of balloon mortgages. The last option involves lump-sum payments, which is not characteristic of a balloon mortgage since the regular payments lead to a substantial single payoff at the end, rather than multiple lump-sum payments.