What is unique about a partially amortized loan?

What is unique about a partially amortized loan?

• A. It has only interest payments
• B. It involves a series of amortized payments followed by a balloon payment
• C. It is paid off in equal amounts over many years
• D. It has a fixed interest rate for its duration

Answer: (B)

A partially amortized loan is characterized by a payment structure where the borrower makes regular amortized payments for a certain period, but at the end of that period, there is still an outstanding balance that must be repaid in a single, larger payment, commonly referred to as a balloon payment. This type of loan is often seen in commercial real estate financing and allows borrowers to benefit from lower initial payments while necessitating a significant payoff later on. In contrast, options that suggest it has only interest payments or is paid off in equal amounts over many years do not accurately define a partially amortized loan. Additionally, while a fixed interest rate can be part of a partially amortized loan, it is not a defining feature of this specific type of loan structure. The essential aspect that distinguishes a partially amortized loan is indeed the combination of amortized payments and a concluding balloon payment.

A partially amortized loan is characterized by a payment structure where the borrower makes regular amortized payments for a certain period, but at the end of that period, there is still an outstanding balance that must be repaid in a single, larger payment, commonly referred to as a balloon payment. This type of loan is often seen in commercial real estate financing and allows borrowers to benefit from lower initial payments while necessitating a significant payoff later on.

In contrast, options that suggest it has only interest payments or is paid off in equal amounts over many years do not accurately define a partially amortized loan. Additionally, while a fixed interest rate can be part of a partially amortized loan, it is not a defining feature of this specific type of loan structure. The essential aspect that distinguishes a partially amortized loan is indeed the combination of amortized payments and a concluding balloon payment.