Question

Caroline has been paying her mortgage steadily for fifteen years. She has just received a notice from her lender that the loan due date is approaching and she will owe a lump sum of $11,257 to pay off her mortgage loan. Which type of promissory note has Caroline NOT been paying?

Answer 1

Answer: A ballon note

Explanation: A balloon payment mortgage is a mortgage which does not fully amortize over the term of the note, thus leaving a balance due at maturity. The final payment is called a balloon payment because of its large size. Balloon payment mortgages are more common in commercial real estate than in residential real estate.A balloon loan is a loan that you pay off with a single, final payment. Instead of a fixed monthly payment that gradually eliminates your debt, you typically make relatively small monthly payments. But those payments are not sufficient to pay off the loan before it comes due. As a result, you need to make a final “balloon” payment to pay off the remaining loan balance, and that payment may be significant.