(1) Instead of a traditional fixed-rate mortgage in which the owner pays on the loan in installments, a balloon mortgage is paid in one lump sum (e.g., the balloon payment). It’s usually associated with investment or construction projects that are issued for the short term and don’t require collateral.

(2) Owing as little money as possible each month to lenders is a dream come true for some buyers. Buyers willing to take a relative risk with their home loan can have this dream become a reality should they secure a balloon mortgage. In essence, any buyer who obtains this type of home loan will owe a huge, one-time payment at the end of their loan-term period to their lender. Those intrigued by this uncommon option would have to be certain they can save enough over the duration of their mortgage to pay such a lump sum.

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