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A mortgage in which monthly installments are not large enough to repay the loan by the end of the term. As a result, the final payment due is the lump sum of the remaining principal. Some balloon mortgages have an option to "reset" on the balloon maturity date. These loans have terms of five or seven years and the option allows the borrower to extend the term of the loan for 23 or 25 years. The interest rate is adjusted for the reset and is calculated based on an index disclosed to the borrower at closing with his/her original documents.
Balloon payment
The final lump sum due at the end of the balloon loan or mortgage.
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