If a mortgage matures without any reduction in the original principal, what is it called?

The correct answer is an interest-only mortgage. In this type of mortgage, the borrower pays only the interest on the loan for a specified period, typically the initial years of the mortgage. During this time, the principal balance remains unchanged. At the end of the interest-only period, the borrower is required to start paying down the principal, which can lead to a significant payment increase.

This situation contrasts with other mortgage types. A balloon mortgage involves regular payments that do not completely amortize the loan, resulting in a lump sum payment at the end. A fixed-rate mortgage features consistent principal and interest payments over the life of the loan, gradually reducing the principal. An adjustable-rate mortgage has varying interest rates that can lead to fluctuations in monthly payments and principal repayment over time. Understanding these distinctions helps clarify why the interest-only mortgage is defined by the lack of principal reduction throughout part of its term.