Finance
A balloon mortgage is best described as a loan that:
AHas a fixed interest rate for its entire term
BRequires a large lump-sum payment at the end of the loan term✓ Correct
CAllows the interest rate to adjust annually
DIs guaranteed by the federal government
Explanation
A balloon mortgage requires a large lump-sum (balloon) payment at the end of a relatively short term. The monthly payments may be lower, but the remaining principal is due in full at maturity.
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Key Terms to Know
Amortization
The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Math Concepts
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