Humber/Ontario Real Estate Course 4 Exam Practice

A fully-amortized loan is one in which:

1. The amortization period is longer than the term.

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

3. Mortgage payments are made strictly on a monthly basis.

4. The required payments repay the loan in full by its maturity date.

The correct answer is: The required payments repay the loan in full by its maturity date.

A fully-amortized loan is characterized by the requirement that the payments made throughout the loan's life will fully repay the principal amount borrowed plus any interest by the maturity date. This means that at the end of the loan term, the balance of the loan is zero, and the borrower has successfully paid off the entire loan through regular payments. This concept is essential in real estate finance because understanding how loans are structured can significantly impact borrowers' financial planning. In a fully-amortized loan, the payment amount is calculated using the total loan amount, the interest rate, and the term of the loan, ensuring that the borrower can anticipate the need for funds to make these payments over time. Amortization period and term relationship or specific conditions around payment frequency are less defining features of amortization. Therefore, the focus should be on the total payment structure rather than the period or frequency of payments. In summary, a fully-amortized loan ensures that all required payments eliminate the loan balance by the end of the term, making option D the correct choice.