Which type of mortgage loan requires the remaining principal balance to be paid at a specific point?

A balloon mortgage is characterized by its structure, which stipulates that a large portion of the principal balance is due at a specified point, often at the end of a relatively short loan term compared to traditional mortgages. Typically, this type of loan might involve lower monthly payments for a number of years, making it appealing for certain borrowers. However, when the balloon payment comes due, the borrower must pay off the outstanding balance in a lump sum, which can pose financial challenges if adequate planning or refinancing options are not in place.

In contrast, a fixed-rate mortgage maintains consistent monthly payments over the life of the loan, with both principal and interest included, ultimately resulting in the full balance being paid off at the end of the loan term. An adjustable-rate mortgage features payments that can fluctuate based on interest rate changes, but it does not necessarily involve a large payment at a defined moment. An interest-only mortgage initially allows the borrower to pay only interest, with the full principal due at a later date, but this does not follow the same schedule as a balloon mortgage's specific principal payment requirement. Therefore, the defining feature of a balloon mortgage makes it the correct choice for this question.