While balloon mortgage loan payments are typically based on a 30-year amortization schedule, the loan actually matures in either 3, 5, 7, or 10 years. Of the following, which is the primary risk that a lender reduces their exposure to through the relatively short loan term on a balloon mortgage?

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The primary risk that a lender reduces their exposure to through the relatively short loan term on a balloon mortgage is interest rate risk. This is because the shorter loan term until the balloon payment is due allows the lender to adjust interest rates more frequently, reducing the risk associated with long-term fixed interest rates in a changing market.

While Balloon Mortgage Loan Payments Are Typically Based on a 30-Year