A balloon mortgage is best described as a loan that:
Correct Answer
B) Requires regular periodic payments with a large lump-sum payment of remaining principal due at the end of the term
A balloon mortgage features regular periodic payments — which may be fully amortizing, partially amortizing, or interest-only — followed by a large lump-sum 'balloon' payment of the remaining principal balance due at the end of the loan term. For example, a loan might have monthly payments calculated on a 30-year amortization schedule but become fully due after 7 years, requiring the borrower to pay off the remaining balance at that point, typically by refinancing or selling the property. Balloon loans are used in both residential and commercial real estate in Montana.
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