Which of the following describes a "balloon mortgage"?

A balloon mortgage is characterized by its payment structure, where the borrower makes periodic payments that do not fully amortize the loan over its term. This results in the borrower having a large final payment (the "balloon") at the end of the mortgage term. The payments during the term typically cover interest and some principal, but they are not enough to pay off the loan in full by the end of the term.

This payment structure is particularly useful for certain borrowers who may expect to sell or refinance before the balloon payment is due. By making smaller payments throughout the term, they can handle their cash flow more easily, but they must be prepared for the substantial payment at maturity.

In contrast, other options describe features that do not align with the characteristics of a balloon mortgage. For instance, a fully amortized mortgage would ensure that the loan is paid off completely by the end of its term, while adjustable-rate mortgages involve changes in interest rates that are not inherent to a balloon structure. A fixed-rate mortgage typically has consistent payments throughout the life of the loan, which also contrasts with the payment dynamics of a balloon mortgage.