General Mortgage Knowledge · 20% of the SAFE exammedium
Correct answer: If the borrower cannot sell or refinance before the balloon payment is due, the entire remaining balance becomes immediately payable
The primary risk of a balloon mortgage is that if the borrower cannot sell the home or refinance before the balloon payment comes due, the entire remaining principal balance is immediately owed to the lender. For a borrower planning to sell within five years, this risk is mitigated if the sale occurs as planned — but market conditions or personal circumstances could prevent the sale. Balloon payment monthly amounts are often lower than fixed-rate equivalents because they don't fully amortize (eliminating "s monthly payments will be higher than those on a co...". The rate on a balloon mortgage is typically fixed, not annually adjusting (eliminating "If the borrower cannot sell or refinance before the...". PMI is based on LTV, not loan type (eliminating "The interest rate on the balloon mortgage will adjus...".
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