Wisconsin Real Estate Sales Practice Exam 2025 – Complete Prep Guide

A loan that is amortized over a long term, such as 30 years, but is due in a much shorter time frame, in this case, five years, is known as a balloon loan. This type of loan typically requires smaller monthly payments based on the longer amortization schedule, but at the end of the short term, the borrower must pay off the balance, which is significantly larger than the installments made previously, hence creating a "balloon" payment.

Balloon loans can be attractive for borrowers who anticipate selling the property or refinancing before the end of the term, as they may benefit from lower monthly payments initially. Understanding this structure is crucial for borrowers, as it requires careful planning regarding the repayment strategy at the end of the loan term. Other options mentioned, such as conventional loans, fixed-rate loans, and adjustable-rate mortgages, do not necessarily contain the same repayment structure that leads to a large final payment due after a short period.