National Real Estate Exam (PSI)FinancingEasy
A homebuyer's monthly mortgage payment includes principal and interest calculated so that the loan balance reaches zero by the end of the loan term. What type of loan is this?
- ABalloon loan
- BBridge loan
- CAmortized loan
- DInterest-only loan
Show answer & explanationAnswer & explanation
Correct answer: C. Amortized loan
An amortized loan has fixed payments that gradually pay down both principal and interest so the balance is fully paid off by the end of the term.
Why the other options are wrong
- A. A balloon loan leaves a large lump sum due at the end, not a zero balance.
- B. Bridge loans are short-term financing, not defined by full amortization.
- D. Interest-only loans do not reduce principal during the interest-only period.
Amortized Loan
A loan with scheduled periodic payments that include both principal and interest, resulting in full repayment by the end of the term.
- Early payments are mostly interest
- Later payments are mostly principal
- Balance reaches zero at maturity
Memory trick: Amortize means to slowly kill the debt until it's gone.