What is a balloon mortgage?

A balloon mortgage is characterized by a structure where the borrower makes lower initial payments throughout the term of the loan, which may cover only interest or a portion of the principal. The defining feature of this loan type is that it culminates in a large final payment, known as the balloon payment, at the end of the loan term. This final payment is significantly larger than the earlier, regular payments, as it typically includes the remaining balance of the principal.

The lower initial payments can make balloon mortgages attractive to borrowers looking for affordable short-term financing, with the understanding that they will need to pay off or refinance the remaining balance when the balloon payment comes due. Borrowers need to be cautious with balloon mortgages since they can lead to financial strain if they are unprepared for the large payment at the end or if market conditions change unfavorably when they attempt to refinance.

In contrast, the other options present different types of mortgage structures. Equal payments throughout describe a fully amortizing mortgage, which is different from the balloon structure. A mortgage that requires a full payment at the end aligns more closely to what is seen in certain short-term loans but does not capture the essence of the gradual lower payments typical in balloon mortgages. The inclusion of property and personal assets pertains to