California Real Estate Practice Exam

A mortgage loan that results in the entire principal balance being due at the end of the term after all other payments have been made is called an interest only loan. This means that the borrower will only be required to pay the interest on the loan during the term and the full principal amount will be due as a lump sum at the end. This type of loan may be suitable for borrowers who expect to have a large sum of money at the end of the term, such as from an investment or inheritance.

The other options are incorrect for the following reasons

A: A balloon loan is similar to an interest only loan in that it also requires a lump sum payment at the end of the term. However, with a balloon loan, the borrower must make regular payments towards both the principal and interest throughout the term.

B: A fixed-rate loan is a type of loan where the interest rate remains the same