Two Loans Have the Same Interest Rate and Maturity

question 18

Multiple Choice

Two loans have the same interest rate and maturity. Loan A has a 15-year amortization rate. Loan B has a 30-year amortization rate. In comparing these two loans from a borrower's perspective:

• A) The advantage of Loan A is lower monthly payments and lower balloon payment at maturity.
• B) The advantage of Loan B is lower monthly payments and lower balloon payment at maturity.
• C) The advantage of Loan A is lower monthly payments but its disadvantage is a higher balloon at maturity.
• D) The advantage of Loan B is lower monthly payments but its disadvantage is a higher balloon at maturity.

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Definitions:

Public Policy

Principles and standards regarded by the legislature or courts as being of fundamental concern to the state and the whole of society.

Illegal

That which is forbidden by law; activities or actions that are against statutory laws and regulations.

Unenforceable

A contract or clause that cannot be executed by the judicial system because it violates laws or regulations or because it lacks certain essential elements.

Mentally Incompetent Persons

Individuals who are legally recognized as incapable of managing their own affairs or making decisions due to mental incapacity.