Which of the following best describes a balloon mortgage?

A balloon mortgage is characterized by having a large final payment due at the end of the term, which distinguishes it from other mortgage types. Typically, this type of mortgage involves smaller periodic payments during the life of the loan, but the total balance is not fully amortized by the time the last payment is due. As a result, the borrower must make a substantial "balloon" payment to pay off the remaining balance.

This structure can be particularly appealing for borrowers who anticipate being able to refinance or sell the property before the balloon payment comes due. Understanding this concept is essential because it highlights the potential risks associated with balloon mortgages, including the chance of not being able to refinance if market conditions change.

Contrastingly, the other types of mortgages listed do not share this distinctive feature of a large final payment. A fixed-rate mortgage is typically characterized by consistent payments over the loan's term, while an interest-only loan allows the borrower to pay only the interest for a specified period before starting to pay down the principal. Lastly, flexible payment schedules refer to loans that permit varying monthly payments, which does not align with the defined structure of a balloon mortgage.