A 189/360 loan is classified as which type of mortgage?

A 189/360 loan is classified as a balloon mortgage because it features a shorter amortization period relative to the loan term. In this case, the loan is amortized over 189 months, or roughly 15 years, while the loan is actually structured to last 30 years (360 months). This means that after the 189 months of payments, a significant remaining balance will be due in a lump sum payment, which is known as the balloon payment. Borrowers who choose balloon mortgages often do so with the expectation of refinancing before that balloon payment is due or selling the property.

In contrast, adjustable rate mortgages have fluctuating interest rates, pay-option mortgages allow borrowers to select from various payment options, and hybrid mortgages combine fixed-rate and adjustable-rate features. However, none of these definitions align with the specific amortization structure of the 189/360 loan. Thus, the classification as a balloon mortgage is the most fitting due to the design of the repayment schedule and the nature of the final payment obligation.