Which loan type often results in a balloon payment at maturity because the payments do not fully amortize the loan?

• A. Partially amortized loan
• B. Open end loan
• C. Graduate payment mortgage
• D. Reverse mortgage

Answer: (A)

A loan that doesn’t fully pay down the principal over the term ends with a big final payment. This happens with a partially amortized loan, where the scheduled payments cover interest and part of the principal but leave a remaining balance to be paid at maturity—a balloon payment.

Open end loans are lines of credit with flexible draws and payments, so they don’t have a fixed balloon at a set maturity. A graduate payment mortgage starts with lower payments that rise over time and is typically designed to be fully repaid by the end, not leaving a balloon. A reverse mortgage doesn’t require regular amortizing payments at all and is repaid when the borrower leaves the home, not as a fixed balloon at a set date.