Which option best describes the features of a balloon mortgage?

A balloon mortgage is characterized by the structure of its repayment terms, which typically involves making regular smaller payments over the majority of the loan’s term, followed by a significantly larger final payment at the end of that term. This large final payment, often referred to as the "balloon" payment, is due after a set period, making option B the most accurate description of balloon mortgages.

When a borrower takes out a balloon mortgage, they benefit from lower monthly payments during the loan term, which can make initial cash flow easier. However, the risk is that at the end of the period, they must be prepared to pay off the remaining balance in one lump sum. This structure is often used in short-term financing situations, where the borrower may intend to sell the property or refinance before the balloon payment is due.

The other options do not accurately describe the fundamental nature of balloon mortgages. While constant payment amounts throughout the loan period refer to amortized loans, an interest-only scheme pertains to loans where only interest is paid for a period without any principal repayment, and immediate full repayment after a year implies a very different type of loan structure altogether. Therefore, the features of a balloon mortgage are best captured by the option discussing the large final payment after a series of