What does a balloon mortgage typically require at the end of its term?

A balloon mortgage is characterized by its structure, in which the borrower makes smaller payments, often consisting primarily of interest, throughout the term of the loan. However, at the end of that term, the entire remaining balance is due as a single lump sum payment. This significant payment is often referred to as the "balloon" payment because it is larger than any preceding payments and essentially "pops" at the end of the loan term.

Understanding this aspect of balloon mortgages is crucial for both borrowers and real estate professionals. Borrowers must be aware that they will need to either pay that lump sum, refinance the remaining balance, or find some other means to manage the payment at the end of the term. While other options may have their purposes in different loan structures, the specific requirement of a balloon mortgage is indeed that it culminates in one larger payment.