Which loan type would heighten a borrower's reliance on sale or refinancing once amortization begins?

Which loan type would heighten a borrower's reliance on sale or refinancing once amortization begins?

• A. Soft money loan
• B. FHA loan
• C. 125% piggyback loan
• D. Hard money loan

Answer: (D)

Hard money loans are typically short-term, asset-based, and often structured with little to no principal paydown during the term and a large balloon payment at the end. Because the borrower isn’t reducing the loan balance over time, the outstanding amount can be substantial when the term ends, making refinancing or selling the property necessary to satisfy the loan. This setup heightens the borrower’s reliance on selling the property or securing a refinance once amortization would begin. By contrast, FHA loans are long-term and fully amortizing, a 125% piggyback loan still involves regular principal payments, and soft money terms vary but don’t inherently rely on a balloon payoff.

Hard money loans are typically short-term, asset-based, and often structured with little to no principal paydown during the term and a large balloon payment at the end. Because the borrower isn’t reducing the loan balance over time, the outstanding amount can be substantial when the term ends, making refinancing or selling the property necessary to satisfy the loan. This setup heightens the borrower’s reliance on selling the property or securing a refinance once amortization would begin. By contrast, FHA loans are long-term and fully amortizing, a 125% piggyback loan still involves regular principal payments, and soft money terms vary but don’t inherently rely on a balloon payoff.