Finance
A Nebraska commercial mortgage with a 25-year amortization and a 5-year balloon means:
AThe loan is fully paid in 5 years
BPayments are calculated on a 25-year schedule but the remaining balance is due after 5 years✓ Correct
CThe interest rate adjusts every 5 years
DThe lender can demand full payment at any time in the first 5 years
Explanation
This structure creates lower monthly payments (based on 25-year amortization) but requires the borrower to refinance or pay the balloon balance at the 5-year mark, when the full remaining balance becomes 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.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
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.
Math Concepts
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