Loan Officer Practice Exam

A 360/180 loan typically has which feature?

1. a balloon payment

2. full amortization

3. interest-only payments

4. fixed interest rate

The correct answer is: a balloon payment

A 360/180 loan is structured in a specific way where the loan is amortized over 30 years (360 months), but it has a term that is typically shorter, often around 15 years (180 months). This structure leads to a situation where after the 15-year period, a large balance remains due. This remaining balance, often referred to as a balloon payment, is what must be paid in a single lump sum at the end of the loan term. The amortization schedule allows the borrower to benefit from lower monthly payments based on the 30-year amortization. However, since the loan term is shorter, it results in a significant amount still owed at the end of that term. The concept of the balloon payment is key to understanding the nature of this type of loan, as it highlights the risk that borrowers may face if they are not prepared for that large payment at the end of the loan term.