A balloon loan in which only the interest is paid during the term; the payment schedule does NOT make any arrangements for the reduction of the principal balance. However, the borrower is free to make additional payments for the purpose of reducing the principal. At the end of the balloon term, the principal balance must be paid. Many home equity lines of credit (HELOC) are interest-only loan programs. For more information about how lenders assess income, see the "Balloon Loans" article in the "Loan Programs" section.
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