What is a "balloon mortgage"?

A balloon mortgage is characterized by the requirement of a large final payment at the end of the loan term. This structure typically involves smaller payments throughout the life of the loan, which do not fully amortize the amount borrowed. As a result, borrowers end up making a significantly larger payment at the end, known as the "balloon payment." This type of mortgage can be attractive in a rising interest rate environment, as it generally starts with lower monthly payments, but it requires careful financial planning to manage the large final payment.

In contrast, other options describe different types of mortgage structures that do not fit the definition of a balloon mortgage. For example, smaller initial payments followed by larger later payments refer more to graduated payment mortgages. Loans with fixed interest rates are stable throughout their term, while short-term mortgages requiring full payment within one year represent a different kind of short-term financing arrangement. Each of these alternative options showcases a distinct mortgage structure that does not encapsulate the specific features of a balloon mortgage.