Tennessee Real Estate Exam Practice Question
A borrower who pays interest only for the entire term and then repays the principal in one lump sum at maturity has what type of loan?
Correct Answer: B
Rationale: A borrower who pays interest only throughout the loan term and repays the principal in one lump sum at maturity is utilizing a straight loan. This type of loan allows for lower monthly payments since only interest is paid initially.
Option A, a fully amortized loan, involves regular payments of both principal and interest, leading to full repayment by the end of the term. Option C, a term loan, typically refers to loans with set repayment schedules, which can include amortized structures. Option D, a partially amortized loan, requires some principal repayment during the term, unlike a straight loan.
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