A balloon mortgage has a 7-year term with a 30-year amortization schedule. At the end of 7 years, what is the borrower typically required to do?
Correct Answer
B) Pay off the remaining loan balance in full or refinance
With a balloon mortgage, the borrower must pay off the entire remaining loan balance when the balloon payment comes due (in this case, after 7 years). This typically requires refinancing the loan or paying cash. The borrower cannot simply continue the original payment schedule since the loan term has ended.
Why This Is the Correct Answer
With a balloon mortgage, the borrower must pay off the entire remaining loan balance when the balloon payment comes due (in this case, after 7 years). This typically requires refinancing the loan or paying cash. The borrower cannot simply continue the original payment schedule since the loan term has ended.
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A borrower has two existing mortgages totaling $200,000 and wants to refinance into a single loan of $195,000, paying off both existing mortgages. What type of transaction is this?
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A borrower makes their regular payment plus an additional $1,000 toward principal on the first payment of their 30-year mortgage. Approximately how much total interest will this save over the life of the loan at 5% interest?