A balloon payment mortgage is characterized by which feature?

A balloon payment mortgage is characterized by which feature?

• A. It has level payments for the life of the loan.
• B. It features small periodic payments with a large balloon payment at the end.
• C. It requires no final payment.
• D. It includes a payment schedule with increasing payments.

Answer: (B)

Balloon payment loans let you make smaller, regular payments that don’t fully pay off the loan by the end of the term. At the end, you owe a large lump sum—the balloon payment—to retire the remaining balance. This structure can mean lower periodic payments upfront, but it creates a big payment hurdle at maturity unless you refinance, sell, or have funds available. The other descriptions don’t fit balloon loans. A loan with level payments for the life of the loan is fully amortizing—every payment reduces the balance enough to pay it off by the end. A loan that requires no final payment would also be fully paid off through regular payments. A schedule with increasing payments describes a graduated or increasing-payment loan, not a balloon loan.

Balloon payment loans let you make smaller, regular payments that don’t fully pay off the loan by the end of the term. At the end, you owe a large lump sum—the balloon payment—to retire the remaining balance. This structure can mean lower periodic payments upfront, but it creates a big payment hurdle at maturity unless you refinance, sell, or have funds available.

The other descriptions don’t fit balloon loans. A loan with level payments for the life of the loan is fully amortizing—every payment reduces the balance enough to pay it off by the end. A loan that requires no final payment would also be fully paid off through regular payments. A schedule with increasing payments describes a graduated or increasing-payment loan, not a balloon loan.