How are balloon payment mortgages different from traditional mortgages? Check all that apply.

1. The term is shorter than for traditional mortgages.

2. Unlike traditional mortgages, the borrower pays no interest.

3. A large payment is due at the end of the term.

4. Balloon mortgages are not issued by banks.

5. Balloon mortgages are more commonly used by home buyers than traditional mortgages.

Question

Konner Pham

Business

3 December, 12:54

How are balloon payment mortgages different from traditional mortgages? Check all that apply.

1. The term is shorter than for traditional mortgages.

2. Unlike traditional mortgages, the borrower pays no interest.

3. A large payment is due at the end of the term.

4. Balloon mortgages are not issued by banks.

5. Balloon mortgages are more commonly used by home buyers than traditional mortgages.

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Answers (1)

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Madison · Answer 1

1 and 3.

The term is usually shorter for balloon payment mortgages because the banks, the issuer, is less likely to want a longer term period because of the default risk. The main component of a balloon payment is that the borrower pays a lower premium during the term of the loan (sometimes interest only, or IO loan) and then pays off the remaining principal at the end of the term, in the balloon payment.

Banks are sometimes issuers of this type of loan, though it depends on the borrower's credit-worthiness and relationship with the bank. Balloon payment mortgages are less used than traditional mortgages because of the risk involved for the lender of the borrower being unable to pay the large final payment of the remaining principal at the end of the term.