Why might a buyer choose to finance a property with a balloon mortgage?

A buyer might choose to finance a property with a balloon mortgage primarily to achieve lower monthly payments for a short period. Balloon mortgages typically feature lower initial payments compared to traditional fixed-rate mortgages, as the payments during the loan's term usually cover only interest or a small portion of the principal. This structure allows buyers to afford higher-priced properties or manage their cash flow more easily in the initial years.

At the end of the balloon term, the remaining balance is due in a lump sum, which is often significantly larger than regular payments made throughout the term. Buyers may opt for this type of financing if they anticipate an increase in their income, a forthcoming large payment (like an inheritance), or a potential sale of the property before the balloon payment is due.

Other options, while they may seem appealing, do not accurately describe the nature of balloon mortgages. For instance, avoiding any interest payments completely is not feasible with a balloon mortgage, nor does it provide immediate ownership free of further payments. Additionally, this type of loan does not typically secure a longer payment period with fixed payments; instead, it requires a large final payment after a relatively short term.