Alabama Real Estate Practice Exam – Practice Test & Study Guide

A balloon loan is a type of loan where the borrower makes small monthly payments for a certain period of time, and then makes one large final payment at the end. This final payment is typically larger than the previous payments and is known as the balloon payment. This type of loan is often used for large purchases or investments, and the final payment allows the borrower to pay off the remaining balance in one lump sum. The other options listed are not key features of a balloon loan. Option A is incorrect because the monthly payments actually stay the same until the final payment is due. Option C is incorrect, as the interest rate for a balloon loan is usually fixed for the entire term. Option D is incorrect because payments are typically made on a monthly basis for balloon loans, not annually.