California Real Estate Practice Exam

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Buyer A most likely signed a(n) ____, promising to pay off all interest on the loan in monthly installments and the principal with the last payment.

Amortized note
Straight note
Balloon note
Adjustable-rate note

The correct answer is: Straight note

A. Amortized note is incorrect because it involves a payment plan for gradually paying off both the interest and principal of a loan. However, Buyer A has promised to pay off the interest in monthly installments and the principal with the last payment, indicating a different type of note. C. Balloon note is incorrect because it involves only partial payments of interest and principal during the loan term, with a final large "balloon" payment at the end. Since Buyer A has promised to pay off all interest in monthly installments, this does not align with a balloon note. D. Adjustable-rate note is incorrect because it involves an interest rate that can change after a certain period of time. However, Buyer A has specifically promised to pay off all interest on the loan in monthly installments, suggesting a fixed interest rate. In comparison, a straight note is a type of promissory note where the borrower makes regular payments of interest and a lump sum payment of the principal at the end. This matches with Buyer A's promise of paying off all interest in monthly installments and the principal with the last payment. Therefore, option B is the most likely choice in this scenario.