California Real Estate Exam 2025 - Collection 5 - Question 144

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California Real Estate Exam 2025
Collection 5
Question 144: The most common type of loan made by institutional lenders is the:
A. Partially amortized installment note.
B. Straight note.
C. Fully amortized fixed-rate note.
D. Adjustable rate mortgage.
Correct answer is C. Fully amortized fixed-rate note.
Partially amortized installment note (also known as a balloon payment loan): These loans have regular payments that don't fully amortize the loan, resulting in a large "balloon" payment at the end of the term. While they exist, they are not as common as fully amortized loans. Straight note also known as a term loan or interest-only loan. With a straight note, the borrower only pays interest during the loan term, with the entire principal due at the end. These are less common for residential mortgages. Adjustable-rate mortgages are prevalent, but they are generally not the most common type of loan. While adjustable-rate mortgages (ARMs) are common, the most common type of loan made by institutional lenders for residential real estate is the fully amortized fixed-rate mortgage. Fully amortized means the regular payments (usually monthly) cover both principal and interest, and the loan is fully paid off by the end of the loan term. Fixed-rate means the interest rate remains the same throughout the loan term, providing predictable monthly payments. These features make fully amortized fixed-rate loans popular with both lenders (due to predictable income streams) and borrowers (due to stable payments).

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