Which mortgage type prohibits the use of balloon payments?

The qualified mortgage is designed with specific guidelines to ensure that borrowers are protected against risky lending practices. One of the key features of qualified mortgages is that they prohibit balloon payments, which are large, lump-sum payments due at the end of a loan term. This prohibition helps provide stability and predictability for borrowers since they will not face the risk of having to make a large payment at once, which could lead to financial difficulty or foreclosure.

In contrast, other types of mortgages, such as fixed-rate, adjustable-rate, and interest-only mortgages, may allow for balloon payments under certain circumstances or terms, which can place borrowers in a vulnerable position if they are not prepared for such payments. By disallowing balloon payments, qualified mortgages aim to make home financing more accessible and sustainable for borrowers, aligning with consumer protection regulations and lending standards.