Ace the Illinois Real Estate Exam 2025 – Unlock Your Property Pro Potential!

The correct type of loan structure described in your question is the balloon loan. This type of loan involves making regular monthly payments for a certain period, which usually covers interest and a portion of the principal. However, at the end of the specified term, the borrower must make a large final payment to cover the remaining balance of the loan.

This structure is particularly appealing for borrowers who may anticipate refinancing or selling the property before the balloon payment comes due. It allows for lower monthly payments initially, making it easier to manage cash flow in the short term. However, the large final payment can pose a risk if the borrower is not prepared for it or if their financial situation changes.

The other types of loans mentioned do not fit this specific structure. A fixed-rate loan involves consistent monthly payments throughout the life of the loan without a large final balloon payment. An adjustable-rate loan typically features fluctuating interest rates and payment amounts, but again, does not involve a balloon payment. An interest-only loan allows the borrower to pay only the interest for a set period, after which principal payments begin, but it does not result in a large lump sum payment due at once like a balloon loan does.