Illinois Real Estate Exam Practice Question
A couple bought their home using a 30-year loan from a lender that 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 is structured to ensure that both interest and principal are paid off by the end of the 30-year term, which defines a fully amortized loan. This type of loan requires regular, equal payments that gradually reduce the principal balance to zero.
Option A, a partially amortized loan, would not fully pay off the principal by maturity, leaving a remaining balance. Option B, an ARM (Adjustable Rate Mortgage), involves fluctuating interest rates, which is not indicated here. Option D, a straight loan, requires only interest payments for a period, not reducing the principal, making it unsuitable for this situation.
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