What type of mortgage loan is not fully paid off by the end of the term?

A balloon mortgage loan is designed with a specific structure that leads to a situation where the loan balance is not fully repaid by the end of its term. In this type of loan, the borrower typically makes regular monthly payments that cover only a portion of the interest and a smaller amount towards the principal. At the end of the loan term, which is usually shorter than a traditional mortgage term (often 5 to 7 years), a large final payment—known as a "balloon payment"—is due. This final payment is substantially higher than the previous regular payments, as it includes the remaining principal balance.

This structure is often used in scenarios where a borrower expects to sell the property or refinance the loan before the balloon payment is due. The payments made during the loan term do not fully amortize the loan, resulting in a significant outstanding balance at maturity. This aspect makes balloon mortgages distinct from fully amortized loans, where payments are structured to pay off the entire loan balance by the end of the term.

In contrast, simple interest loans accrue interest but do not typically have a balloon payment structure. A fully amortized loan is designed to pay off both principal and interest completely by the end of the loan term. Conventional mortgages may have various payment