Real Estate Finance
A mortgage with periodic payments that do not fully amortize, leaving a large lump-sum payment due at the end of the loan term.
A balloon mortgage requires the borrower to make regular monthly payments for a set period, typically 5 to 7 years, and then pay the entire remaining balance in one lump sum (the balloon payment). Monthly payments may cover only interest, or may partially amortize the loan. Borrowers usually refinance before the balloon payment is due. If refinancing is not available, the borrower must either pay the lump sum or face foreclosure.
Exam Tip
A balloon mortgage is NOT fully amortized. The large final payment distinguishes it from a standard fixed-rate mortgage.
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