Finance
What is a 'balloon payment' mortgage and what is the risk for Nevada borrowers?
AA mortgage with no payments for the first year
BA mortgage with regular monthly payments for a set period (e.g., 5-7 years) followed by a large lump-sum payment of the remaining balance — risky because borrowers must refinance or pay off the balloon when it comes due✓ Correct
CA mortgage where payments increase annually like an inflating balloon
DA Nevada-specific term for FHA loans with upfront mortgage insurance
Explanation
A balloon mortgage has regular payments (often based on a 30-year amortization) for a shorter term (5, 7, or 10 years), after which the entire remaining balance is due. The risk: if interest rates rise or the borrower's credit deteriorates by the balloon date, they may not be able to refinance — forcing a distressed sale or default.
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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.
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.
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.
Math Concepts
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