North Carolina Real Estate Broker Exam — All Questions

A borrower obtains a mortgage loan with a fixed interest rate and equal monthly payments that fully repay the loan by the end of the term. This is best described as:

• a.An interest-only loan
• b.A balloon loan
• c.A fully amortizing loan✓
• d.A negative amortization loan

A fully amortizing loan uses level payments that cover both interest and principal so the balance reaches zero at the end of the term. An interest-only loan leaves the principal untouched during the interest-only period, and a balloon loan requires a large lump-sum payoff before amortization would complete. Negative amortization occurs when payments are too small to cover interest, causing the balance to grow.