P3-68 quiz

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Question 1 of 4

1. Question
In which situation might a balloon mortgage be considered appropriate for a borrower?
- A) When the borrower wants the lowest possible payment for 30 years
- B) When the borrower expects to receive a significant lump sum before the balloon comes due
- C) When the borrower wants to avoid refinancing at all costs
- D) When the borrower prefers a fully amortized loan with no risk
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Question 2 of 4

2. Question
Why is using a balloon mortgage with the intention to refinance considered risky?
- A) Refinancing eliminates all closing costs
- B) Refinancing guarantees a lower payment
- C) Market downturns may prevent refinancing, leaving the borrower unable to pay the balloon
- D) The balloon loan automatically converts to a 40-year mortgage
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Question 3 of 4

3. Question
What is a major disadvantage of planning to sell the property before the balloon payment is due?
- A) Selling the home automatically increases the balloon amount
- B) There is no guarantee the borrower will be able to find a buyer in time
- C) Lenders prohibit sales during balloon mortgage terms
- D) Selling the home cancels the borrower’s credit history
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Question 4 of 4

4. Question
Why are balloon mortgages generally not recommended for most borrowers?
- A) They always have higher interest rates than fixed mortgages
- B) The final lump-sum payment is unrealistic for most borrowers to afford
- C) They require no credit evaluation
- D) They eliminate the option to refinance
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