Humber/Ontario Real Estate Course 3 Exam Practice

For a fully-amortized loan, what is the hallmark characteristic?

1. The amortization period is longer than the term.

2. The amortization period is no more than 20 years.

3. The loan is repaid in full by the maturity date.

4. Payments are strictly monthly.

5. Payments include partial principal payback.

6. Interest rates change annually.

The correct answer is: The loan is repaid in full by the maturity date.

The hallmark characteristic of a fully-amortized loan is that the loan is repaid in full by the maturity date. This means that through regular payments over the term of the loan, which includes both principal and interest, by the end of the designated period, the borrower has satisfied the total debt obligation. In a fully-amortized loan, typical payment structures ensure that each installment contributes to lowering the principal amount while covering the accrued interest, resulting in a zero remaining balance at maturity. The predictability of this repayment structure is beneficial for both lenders and borrowers, providing clarity on the total payment amount required over the loan duration. Considerations like the length of the amortization period or whether payments are monthly do not define the fully-amortized nature of the loan. It can have various payment frequencies or lengths but still hold the characteristic of full repayment by maturity, distinguishing it from other types of loans that may require balloon payments or might not amortize fully.