Question

If a mortgage loan payment consists of interest only, the final payment which includes the full amount borrowed is called a

a. monthly payment.
b. balloon payment.
c. amortized payment.
d. term payment.

Answer 1

The final payment which includes the full amount borrowed in a mortgage loan where the monthly payments consist of only interest is called a balloon payment.

Step-by-step explanation:

The correct answer is b. balloon payment.

A balloon payment is the final payment which includes the full amount borrowed in a mortgage loan where the monthly payments consist of only interest. This means that throughout the term of the loan, the borrower pays only the interest on the loan and makes no principal payments.

For example, if someone borrows $100,000 with a balloon payment mortgage, they would make monthly payments of interest only, usually for a shorter period of time like 5 or 7 years. Then, at the end of the loan term, the borrower will have to make the final balloon payment to pay off the full amount borrowed.