Question

While balloon mortgage loan payments are typically based on a 30-year amortization schedule, the loan actually matures in either 3, 5, 7, or 10 years. Of the following, which is the primary risk to which lenders reduce their exposure through the relatively short loan term on a balloon mortgage

Answer 1

Interest rate risk

Step-by-step explanation:

Interest rate risk is present in an interest-bearing resource, such as a mortgage or a debt, due to the likelihood of a shift in the value of the property arising from interest rate fluctuations.

Operation of interest rate risk is becoming very critical, and a range of techniques have already been introduced to mitigate interest rate risk.