What should borrowers be cautious about when considering a balloon mortgage?

When considering a balloon mortgage, borrowers should indeed be particularly cautious about the large final payment that must be made, which can indeed cause significant financial strain. Balloon mortgages are structured so that smaller payments are made over the term of the loan, typically with a large lump sum payment due at the end of the loan period. This final payment can be a substantial amount, often equivalent to the original loan amount, and when it comes due, borrowers might find themselves unprepared to make such a large payment. This can lead to financial hardship, especially if they have not planned ahead or have not been able to refinance the mortgage before the balloon payment is due.

In contrast, the other options do not capture the primary risk associated with balloon mortgages. While interest rates can vary, they are not always lower than fixed-rate mortgages, nor do balloon loans inherently offer easier qualification terms. Additionally, balloon mortgages typically have shorter terms than traditional mortgages, not lengthy ones, which contradicts the premise of requiring caution in that area.