New Jersey Real Estate Practice Exam Practice Question
A couple bought their first home, qualifying for a 30-year loan. The lender required regular, equal payments of sufficient size and number to pay all interest due on the loan and reduce the amount owed to zero by the loan's maturity date. This is most likely
Correct Answer: C
Rationale: In this scenario, the couple's loan requires regular, equal payments that cover both interest and principal, ensuring the loan balance reaches zero by maturity. This structure defines a fully amortized loan, where each payment contributes to paying down the principal over time.
Option A, a partially amortized loan, involves payments that may not fully cover the principal, potentially resulting in a remaining balance at maturity. Option B, an adjustable-rate mortgage (ARM), features fluctuating interest rates, not fixed payments. Option D, a straight loan, requires only interest payments during the term, leaving the principal due at maturity.
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