Nationwide Mortgage Licensing System (NMLS) Practice Exam

Which of the following is NOT a fully amortized loan?

1. Term mortgage

2. Fixed-rate mortgage

3. Adjustable-rate mortgage

4. Bi-weekly mortgage

The correct answer is: Term mortgage

A term mortgage is generally not considered a fully amortized loan because it typically involves a situation where the borrower pays interest only for a set period, which can range from a few years to several years, after which the entire principal amount is due. In contrast, fully amortized loans, such as fixed-rate mortgages and adjustable-rate mortgages, require the borrower to make payments throughout the life of the loan that cover both principal and interest. This means that by the end of the loan term, the borrower has completely repaid the loan. Bi-weekly mortgages also involve the same principle, as they are simply a variation of how frequently payments are made rather than the structure of loan amortization. They allow borrowers to make payments every two weeks, which can lead to paying down the loan quicker but still maintains the fully amortized nature of the loan. In summary, while the other options include fully amortized loans that systematically reduce both principal and interest over the loan term, a term mortgage does not inherently include that characteristic, making it the correct choice.