Florida Real Estate Sales Associate Examination Content OutlineReal Estate FinanceEasy
A buyer is looking to purchase a property but needs a loan that does not require monthly principal and interest payments. Which of the following mortgage types would best suit their needs?
- APackage Mortgage
- BConstruction Loan
- CAdjustable-Rate Mortgage (ARM)
- DInterest-Only Mortgage
Show answer & explanationAnswer & explanation
Correct answer: D. Interest-Only Mortgage
An interest-only mortgage allows the borrower to pay only the interest portion of the loan for a specified period, without reducing the principal. This aligns with the buyer's need to avoid monthly principal and interest payments.
Why the other options are wrong
- A. A package mortgage includes both real and personal property, but still requires principal and interest payments.
- B. A construction loan funds building and typically requires interest payments during construction, but then converts to a standard mortgage with principal and interest.
- C. An ARM involves principal and interest payments, with the interest rate fluctuating.
Interest-Only Mortgage
A mortgage loan where the borrower pays only the interest for a set period, with the principal balance remaining unchanged.
- Lower initial monthly payments
- Principal repayment deferred
- Can be risky if property value declines
Memory trick: Interest-Only: Just the 'I' in 'PITI', not the 'P'.