balloon mortgage

n.
A short-term mortgage in which small periodic payments are made until the completion of the term, at which time the balance is due as a single lump-sum payment.

Mortgage that does not fully repay principal and interest by the maturity date. A balloon mortgage, also known as a nonamortizing mortgage, has a lower debt repayment than a conventional fixed rate mortgage loan, and thus is attractive to new home buyers whose incomes may be expected to increase, or to people who expect to sell their property and pay off the loan in a much shorter period than if they had borrowed with a conventional, fully-amortized mortgage. The two types of balloon mortgages are the Interest-Only Loan-a mortgage with payments that cover only the interest owed and the partially amortizing mortgage, also known as a Rollover mortgage-a short-term mortgage that must be refinanced at the end of a stated term, usually three to five years. See also Alternative Mortgage Instruments; Negative Amortization.

A mortgage with a Balloon Payment.
Example: The balloon mortgage called for payments of $500 per month for 5 years, followed by a Balloon Payment of $50,000.