What is the exam-ready distinction?
| Roadmap post | 190 of 500 |
|---|---|
| Official syllabus topic | Financing: Loan Types; Amortization and Balloon Payments |
| Official PSI area | Financing |
| Published weight | 10% of the 100-question national portion |
| Source edition | PSI Georgia Candidate Information Bulletin dated July 1, 2026 |
| Content checked through | August 2, 2026 |
The Rule
PSI publishes a weight for the complete official area, not a guaranteed count for this individual comparison. Use the source, document, actor, event, and timing stated in the question before applying a memorized definition.
Side-by-side comparison
Read across each row. The terms are deliberately compared on identical dimensions so the difference remains clear when the exam hides the vocabulary inside a scenario.
| Decision dimension | Fully amortized | Balloon | Interest-only |
|---|---|---|---|
| Scheduled principal | Principal is reduced to zero by maturity | Payments do not fully retire principal before maturity | No principal during the interest-only period |
| At maturity | No scheduled principal balance remains | Large remaining balance is due | Structure may begin amortizing or require a remaining balance, depending on terms |
| Payment risk | Payment structure is designed for full payoff | Refinance or payoff risk at maturity | Principal does not fall during the interest-only period |
| Exam clue | Zero balance at final scheduled payment | Final payment much larger | Periodic payment covers interest but not principal |
Decision rule
Georgia-specific distinction
Worked example
Scenario. A five-year note uses monthly payments calculated on a 30-year amortization schedule, with the unpaid balance due after year five.
Reason it through. The payments reduce some principal but cannot retire a 30-year balance within five years.
Answer. The note is partially amortized with a balloon payment at maturity.
Common exam traps
- Calling every level-payment loan fully amortized
- Confusing loan term with amortization period
- Assuming interest-only means no payment
- Ignoring the final balance
Original practice questions with detailed explanations
These are original instructional questions mapped to the July 1, 2026 PSI outline. They are not copied from PSI or any live examination. Choose an answer before opening the explanation.
Question 1Which loan feature creates a final payment larger than the regular installments?
- A. Full amortization to zero
- B. Defeasance
- C. A balloon balance
- D. A fixed interest rate by itself
Show answer and explanation →
Answer: C. A balloon balance
A balloon balance is correct. A fully amortized loan's scheduled payments reduce principal to zero by maturity. A balloon loan has a remaining balance that becomes due in a large final payment. An interest-only structure requires only interest during the specified period, so principal does not decline then; later terms determine whether payments reset or a balance is due. The rejected choices are Full amortization to zero; Defeasance; A fixed interest rate by itself. Each misses the legal category or controlling fact stated in the rule.
Question 2A five-year note uses monthly payments calculated on a 30-year amortization schedule, with the unpaid balance due after year five.
- A. It is fully amortized because monthly payments occur.
- B. It is interest-only because the term is short.
- C. The balance disappears when the security deed is recorded.
- D. The note is partially amortized with a balloon payment at maturity.
Show answer and explanation →
Answer: D. The note is partially amortized with a balloon payment at maturity.
The payments reduce some principal but cannot retire a 30-year balance within five years. Therefore, The note is partially amortized with a balloon payment at maturity. The other choices fail because they replace those controlling facts with a neighboring concept or an unsupported absolute rule.
Question 3What should a candidate identify first when comparing Fully Amortized Versus Balloon Versus Interest-Only Loan?
- A. Track how much of each payment reaches principal and whether any principal remains at maturity or after the interest-only period.
- B. The option with the longest definition, without classifying the facts.
- C. A memorized Georgia rule, even when the question asks for a national concept.
- D. The answer that sounds most favorable to the buyer, regardless of the document or event.
Show answer and explanation →
Answer: A. Track how much of each payment reaches principal and whether any principal remains at maturity or after the interest-only period.
Track how much of each payment reaches principal and whether any principal remains at maturity or after the interest-only period. That sequence identifies the legal category before the label. Choosing by definition length ignores the facts, importing a Georgia rule can answer the wrong jurisdictional question, and favoring one party substitutes sympathy for classification.
Mastery tracking
Mark this distinction mastered only when every statement is true.
- Define every compared term without using the other term as the definition.
- Rebuild the comparison table from memory.
- State the decision rule and Georgia distinction without notes.
- Solve the worked example after changing one controlling fact.
- Explain why every trap and distractor is tempting but wrong.
- Answer all three original questions correctly in mixed practice on a later day.
Recommended next lesson
Continue with Fixed-Rate Versus Adjustable-Rate Mortgage. Continue to roadmap comparison 191.
Return to the complete exam-concept library or the Financing hub.