Balloon mortgage

Balloon mortgage is a mortgage loan in which payments are initially made as usual, but after a certain period of time the rest of the loan is repaid immediately. In other terms, it is a short-term mortgage, where initial payments are structured as long-term payments, and the final payment (which naturally is a lot bigger than all the previous payments) is made as if ‘ahead of time’, covering the rest of the term. For example, a mortgage loan for five years is given, and for the first four years payments are smaller than they should be, as if the loan had been given for 30 years. On the last, fifth, year the final payment is made, and it is a lot bigger than all the previous payments, because it must cover all the remaining loan at once.