Legal Definitions - balloon-payment mortgage

A balloon-payment mortgage is a type of mortgage that requires the borrower to make periodic payments for a specified time and a lump-sum payment of the outstanding balance at maturity. This means that the borrower will have to make smaller payments during the term of the mortgage, but will have to pay a large amount at the end of the term.

For example, let's say a borrower takes out a 30-year balloon-payment mortgage for $200,000 with an interest rate of 5%. The borrower will make monthly payments of $1,073 for 29 years, but at the end of the 30th year, they will have to pay a lump sum of $183,941 to pay off the remaining balance.

This type of mortgage can be risky for borrowers because they may not have the funds to make the large payment at the end of the term. However, it can be beneficial for those who plan to sell the property or refinance before the balloon payment is due.