Ethics · 18% of the SAFE exameasy
Correct answer: A large lump-sum payment due at the end of a loan term, typically after a series of smaller regular payments
A balloon payment is a single, large payment due at or near the end of a loan's term, following a period of smaller regular payments. Because the regular payments may not fully amortize the loan, borrowers must refinance, sell, or pay a substantial lump sum when the balloon comes due. "A large lump-sum payment due at the end of a loan te..." describes a graduated payment mortgage. "A penalty charged to a borrower who pays off a mortg..." describes a prepayment penalty. "An adjustable payment tied to changes in a specific..." describes an adjustable-rate mortgage payment structure. Balloon payments become predatory when borrowers are not fully informed of the large final obligation or lack the ability to meet it.
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