A covered loan runs for 4 years with payments that leave $61,000 outstanding at maturity. Assuming no statutory exception applies, is this balloon structure permitted for a four-year covered loan?
Correct Answer
B) Prohibited: a term of 5 years or less may not end in a balloon payment at all
For a covered loan with a term of 5 years or less, a payment schedule whose regular payments do not fully amortize the balance by maturity is prohibited. Other choices: balloons are not open on any term; no percentage threshold applies; and disclosure in the note does not make the structure permissible. Source: Cal. Fin. Code § 4973(b)
Why This Is the Correct Answer
For a covered loan with a term of 5 years or less, a payment schedule whose regular payments do not fully amortize the balance by maturity is prohibited. Other choices: balloons are not open on any term; no percentage threshold applies; and disclosure in the note does not make the structure permissible. Source: Cal. Fin. Code § 4973(b)
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