Mortgage Loan Originator (MLO) Licensing Practice Test 2026 – Your All-in-One Guide to Exam Success!

The correct choice is term mortgage, which is specifically designed to have a loan term shorter than the standard 15 or 30 years. A term mortgage typically has a duration of 5 years or less and is often not fully amortized, meaning that at the end of the term, there is still a remaining balance on the loan. Borrowers may need to refinance, sell the property, or pay a lump sum at that time. This structure allows borrowers to benefit from potentially lower interest rates or smaller payments during the term, but it also requires careful financial planning for the end of the term.

Fixed-rate and adjustable-rate mortgages usually have longer terms, such as 15 or 30 years, making them fully amortized over that period. A subprime mortgage, on the other hand, is designed for borrowers with lower credit scores and can have varied terms, but it does not specifically characterize the short-term, non-amortizing nature that defines a term mortgage. Therefore, understanding the characteristics of a term mortgage becomes essential for grasping how different mortgage products function in the market.