A balloon payment is typically required at what point in a balloon mortgage?

A balloon payment is a feature of certain mortgage loans, particularly balloon mortgages, which typically require borrowers to make periodic payments that do not cover the entire principal amount over the life of the loan. Instead, these payments primarily cover interest, leading to a significant outstanding balance when the loan reaches its maturity date.

The key aspect of a balloon mortgage is that a large final payment is due at the end of the loan term, which is known as the balloon payment. This payment is substantially larger than the preceding regular payments because it encompasses the unpaid principal balance.

Understanding the characteristics of balloon mortgages helps in recognizing why the maturity date is the correct answer. During the loan term, the borrower makes smaller payments, but ultimately, it is at the maturity date that the balloon payment must be made to fully settle the loan. This understanding is crucial for borrowers to plan their finances adequately, ensuring they can meet this obligation at the end of the term.