The balloon payment technique uses level payments of principal and interest but for a shorter period than is required to retire the loan fully during…

A balloon payment is the final lump sum payment of the outstanding principal balance of a loan, due at the end of the loan's term. The provided text describes a loan with a "7-year maturity." The term "maturity" refers to the end of the loan's life, at which point any remaining balance must be paid in full. Therefore, the balloon amount, which is the outstanding principal of $889 per $1,000 borrowed, is due at the end of the 7th year, coinciding with the loan's maturity date. The other numerical details in the text are illustrative of how the balloon amount is calculated but do not alter the timing of the payment.

B. 5th-year: This is incorrect. The loan's maturity is explicitly stated as 7 years in the problem description, not 5 years.

C. 6th-year: This is incorrect. The problem specifies a 7-year maturity, which dictates when the final balloon payment is due.

D. 4th-year: This is incorrect. The loan term is clearly defined as 7 years, making the balloon payment due at that time.

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1. Brueggeman

W. B.

& Fisher

J. D. (2019). Real Estate Finance & Investments (16th ed.). McGraw-Hill Education.

Section: Chapter 5

"Fixed-Rate Mortgage Loans

" discusses loan amortization and terms. It defines the loan term (or maturity) as the period after which the loan must be fully repaid. For a partially amortizing or balloon loan

the outstanding mortgage balance is due at the end of the specified term. In this case

the term is 7 years.

2. Geltner

D.

Miller

N. G.

Clayton

J.

& Eichholtz

P. (2014). Commercial Real Estate Analysis and Investments (3rd ed.). Cengage Learning.

Section: Chapter 10

"Mortgage Debt

" explains that a balloon mortgage has a loan term that is shorter than its amortization period. The remaining loan balance at the end of the term is the "balloon payment

" which must be paid at maturity. The example's 7-year maturity directly corresponds to the due date of the balloon payment.

3. MIT OpenCourseWare. (2006). 11.433J Real Estate Finance and Investment

Fall 2006. Massachusetts Institute of Technology.

Reference: Lecture Notes

Lecture 4: "Fixed Rate Mortgages." The notes differentiate between the amortization term and the loan term (maturity). For a balloon loan

the outstanding balance is due at the end of the loan term

which the problem states is 7 years.