Ethics · 18% of the SAFE exameasy
Correct answer: Cannot afford the lump-sum payment at maturity and is pressured to refinance with the same lender
Balloon payment traps are predatory when a lender knowingly places a borrower in a loan with a large lump-sum payment due at the end, aware the borrower cannot pay it. When the balloon comes due, the borrower is forced to refinance — often with the same lender at unfavorable terms — or risk foreclosure. Fixed-rate loans (A) are not inherently predatory. Choosing a shorter amortization (C) is a borrower-driven decision, not predatory. A lower rate in exchange for a balloon (D) may be a legitimate product if the borrower understands and can handle the risk.
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