Finance
In Michigan, a balloon mortgage is characterized by:
AMonthly payments that increase every year
BSmaller regular payments followed by a large lump-sum payment at the end of the term✓ Correct
CAn interest rate tied to the balloon market index
DFull amortization over 30 years
Explanation
A balloon mortgage features regular (often lower) payments for a set period followed by a large balloon payment of the remaining principal at the end of the term.
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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.
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.
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.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Math Concepts
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