P3-65 quiz

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Question 1 of 4

1. Question
What feature gives a “balloon mortgage” its name?
- A) Payments that start high and gradually decrease over the life of the loan.
- B) A large final payment due after a period of smaller payments, when the remaining balance comes due at once.
- C) A loan where principal is paid off immediately and only interest remains.
- D) Monthly payments that fluctuate randomly based on market conditions.
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Question 2 of 4

2. Question
In the example of a 10-year Balloon Payment Mortgage based on a 30-year amortization at 3% interest, what happens at the end of the 10th year?
- A) The loan is automatically extended for another 20 years with no change in terms.
- B) The remaining balance is forgiven if the borrower has made all payments on time.
- C) Only accrued interest is due; principal remains on a 30-year schedule.
- D) The unpaid balance (about $228,059.43) becomes due in a single balloon payment, typically requiring refinance or sale of the home.
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Question 3 of 4

3. Question
Which borrower is the best candidate for a balloon mortgage instead of a 30-year fixed-rate mortgage, based on the text?
- A) A borrower who expects to live in the home less than 10 years and wants a slightly lower interest rate than a 30-year fixed.
- B) A borrower who insists on fully paying off the loan in exactly 30 years with no large final payment.
- C) A borrower who prefers an interest rate higher than the 30-year fixed rate.
- D) A borrower who never wants to refinance or sell the property.
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Question 4 of 4

4. Question
According to the text, which of the following describes one type of balloon mortgage?
- A) A fully amortizing loan where each payment reduces principal and the balance is zero at term end.
- B) A loan where payments are applied only to principal, with all interest due in a final lump sum.
- C) An interest-only loan where payments cover only the fixed interest amount and no principal.
- D) A loan that automatically converts to a 30-year fixed amortizing mortgage after five years.
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