What type of mortgage allows for a lower initial payment with a balloon payment later?

A balloon mortgage is structured to have lower initial monthly payments for a certain period, typically through lower interest rates. However, at the end of that term, a large payment—known as the balloon payment—becomes due. This type of mortgage is often appealing for borrowers who anticipate that their financial situation will improve over time or who plan to sell the property before the balloon payment is due.

In contrast, adjustable-rate mortgages can have varying interest rates over time, and interest-only mortgages allow for only interest payments initially, but do not specifically require a balloon payment at the end. Conventional mortgages usually involve consistent payments throughout the life of the loan without a notable balloon amount due at the end. Therefore, the defining characteristic of a balloon mortgage, which is the significant final payment due after a period of lower payments, clearly distinguishes it from these other types.