Balloon Mortgage:
A mortgage which has regular monthly payments over a set period of time,
possibly 5 or 10 years and a final lump sum payoff (balloon payment) at the
end of the term.
The regular monthly payments are not large enough to fully amortize (pay
off the principle amount of the loan) over the term of the loan so the balloon
payment at the end of the term pays the remaining amounts due by the
borrower to the lender.
For example:
Assume that only 10% of the original loan amount has been repaid over the
term of the mortgage loan through the regular monthly payments. Then 90%
of the loan is still unpaid. The unpaid 90% will be included in the balloon
payment.
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