What is the minimum term allowed for a balloon mortgage?

What is the minimum term allowed for a balloon mortgage?

• A. 3 years
• B. 5 years
• C. 10 years
• D. 15 years

Answer: (B)

The minimum term allowed for a balloon mortgage is typically five years. A balloon mortgage features a payment structure where the borrower makes lower monthly payments for a set period, and at the end of that period, a large "balloon" payment for the remaining balance is due. This structure makes the initial payments more affordable but requires careful consideration by the borrower regarding their ability to refinance or pay off the remaining balance at the end of the term. Having a minimum term of five years ensures that borrowers have a reasonable amount of time to manage their payment obligations and plan for the eventual larger payment. Terms shorter than five years could lead to financial strain, as the borrower may not have enough time to prepare for the balloon payment or secure refinancing options. A minimum term of five years strikes a balance between affordability and risk, making it a common standard in the mortgage industry.

The minimum term allowed for a balloon mortgage is typically five years. A balloon mortgage features a payment structure where the borrower makes lower monthly payments for a set period, and at the end of that period, a large "balloon" payment for the remaining balance is due. This structure makes the initial payments more affordable but requires careful consideration by the borrower regarding their ability to refinance or pay off the remaining balance at the end of the term.

Having a minimum term of five years ensures that borrowers have a reasonable amount of time to manage their payment obligations and plan for the eventual larger payment. Terms shorter than five years could lead to financial strain, as the borrower may not have enough time to prepare for the balloon payment or secure refinancing options. A minimum term of five years strikes a balance between affordability and risk, making it a common standard in the mortgage industry.