A balloon payment mortgage is a loan where the borrower makes regular monthly payments — typically based on a 30-year amortization schedule — for a shorter term (usually 5 to 7 years). At the end of that term, the remaining balance becomes due all at once in one large lump sum payment, known as the "balloon payment."
This type of mortgage often comes with a lower initial interest rate compared to traditional fixed-rate loans, making monthly payments more affordable in the short term. However, borrowers must be prepared to either pay off the remaining balance in full, refinance the loan, or sell the property before the balloon payment comes due.
Balloon payment mortgages can be a good fit for buyers who expect to sell or refinance before the term ends, or for those who anticipate a significant increase in income or assets in the future.