What characterizes a balloon mortgage?

A balloon mortgage is characterized by having one large final payment due at maturity. This type of loan typically involves smaller monthly payments that may cover only interest or a small portion of the principal, culminating in a significantly larger "balloon" payment at the end of the term. This structure allows borrowers to have lower initial monthly payments, which can be advantageous for those who may expect to refinance or sell the property before the balloon payment is due.

The other options do not accurately describe a balloon mortgage. Equal monthly payments throughout the loan term represent a traditional fixed-rate mortgage where the borrower's payments remain the same over time. A loan paid off with interest-only payments also differs from a balloon mortgage, as it typically does not involve a large final payment but rather pays only the interest during the term. Payments that vary based on an index describe an adjustable-rate mortgage, which fluctuates according to market rates rather than having a fixed balloon payment structure. Therefore, the defining feature of a balloon mortgage is indeed the large final payment that is due at maturity.