Question

How are balloon payment mortgages different from traditional mortgages? Check all that apply.

Answer 1

1 and 3. 

The term is usually shorter for balloon payment mortgages because the banks, the issuer, is less likely to want a longer term period because of the default risk. The main component of a balloon payment is that the borrower pays a lower premium during the term of the loan (sometimes interest only, or IO loan) and then pays off the remaining principal at the end of the term, in the balloon payment. 

Banks are sometimes issuers of this type of loan, though it depends on the borrower's credit-worthiness and relationship with the bank. Balloon payment mortgages are less used than traditional mortgages because of the risk involved for the lender of the borrower being unable to pay the large final payment of the remaining principal at the end of the term. 

Answer 2

The answer is:

1. The term is shorter than for traditional mortgages.

3. A large payment is due at the end of the term.

in balloon payment mortgages, the buyers would had to pay considerably small amount before the mortgage is due.  At the end of the term, the amount of mortgage is fully amortized and leave a huge sum for the final payment.  (just like a balloon that start small and keep getting bigger as it pumped). This type of mortgage is very common in commercial properties.