What is a balloon payment in relation to a mortgage loan?

A balloon payment refers specifically to a larger than normal final payment that is due at the end of a loan term. In the context of certain mortgage loans, especially those that have fixed lower payments for a defined period before the larger final payment becomes due, this type of payment structure can arise.

These loans are usually structured such that borrowers pay smaller amounts over the initial period, highlighting the short-term nature of these loans. When the term ends, the borrower must then pay off the remaining balance in one large sum. Such a payment can catch borrowers off guard if they are not adequately prepared for it, as they need to have funds available to cover this significant final amount. This concept is crucial in understanding loan terms and helps borrowers to manage their financial planning accordingly.

The other options describe different payment mechanisms that are not specific to the definition of a balloon payment. Specific payments made at the beginning of a loan, periodic payments that remain constant, or late payment fees do not encapsulate the essence of a balloon payment structure.