Finance
Under New York law, which of the following is an example of a 'balloon payment' in a commercial mortgage?
AA payment that gradually decreases over the loan term
BA large lump-sum payment of the remaining loan balance due at the end of a shorter loan term (e.g., a $5,000,000 balance due at the end of 10 years on a 25-year amortization loan)✓ Correct
CMonthly payments that increase each year at the rate of inflation
DA prepayment penalty paid at loan origination
Explanation
In a commercial mortgage with a balloon payment, the monthly payments are calculated on a longer amortization (such as 25 or 30 years) but the entire remaining loan balance becomes due at a specified earlier date (such as 5, 7, or 10 years). The large final payment is called the 'balloon' because it is much larger than the regular monthly payments.
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