A balloon mortgage is best described as a loan that:
Correct Answer
B) Requires regular monthly payments followed by a large lump-sum payment of the remaining balance at the end of the loan term
A balloon mortgage features regular monthly payments — often calculated on a longer amortization schedule to keep payments lower — followed by a large lump-sum 'balloon' payment of the remaining principal balance due at a specified maturity date (commonly 5 to 7 years). Because the loan is not fully amortized by the end of the term, the borrower must either refinance, sell the property, or pay off the remaining balance when the balloon payment comes due. Balloon loans carry refinancing risk if market conditions or the borrower's creditworthiness change before maturity.
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