Which best describes the payment structure of a balloon mortgage?
Correct Answer
B) Regular periodic payments followed by one large final payment
A balloon mortgage features regular periodic payments (often calculated on a long amortization schedule) followed by a single large 'balloon' payment of the remaining principal balance at the end of a shorter loan term. Borrowers must pay off or refinance the remaining balance when the balloon payment comes due.
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Related Concepts
RESPA is a federal law that requires lenders to provide borrowers with information about settlement costs, prohibits kickbacks and referral fees, and limits escrow account deposits. It applies to federally related mortgage loans.
The secondary mortgage market is where existing mortgage loans are bought and sold between lenders, investors, and government-sponsored enterprises (GSEs) like Fannie Mae, Freddie Mac, and Ginnie Mae.
TILA is a federal law that requires lenders to disclose the true cost of credit to borrowers, including the annual percentage rate (APR), total finance charges, and loan terms. It is implemented by Regulation Z.
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