Finance
A Minnesota mortgage has a 'balloon payment' feature. This means:
AMonthly payments include a 'balloon' adjustment for interest rate changes
BThe final payment is substantially larger than regular payments (a lump sum payoff)✓ Correct
CThe loan amortizes completely over 30 years with no special payments
DPayment amounts increase each year to account for inflation
Explanation
A balloon payment mortgage requires a large lump-sum payment at the end of a shorter term (often 5-7 years) to pay off the remaining balance, even though monthly payments are based on a longer amortization period. Balloon mortgages are sometimes used in Minnesota commercial transactions or when buyers expect to refinance before the balloon is due.
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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.
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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