Finance
In Alaska, 'negative amortization' on a mortgage occurs when:
AThe interest rate decreases below the initial rate
BThe scheduled payment is insufficient to cover the accrued interest, and the unpaid interest is added to the principal balance✓ Correct
CThe property value decreases below the loan balance
DThe borrower makes extra principal payments
Explanation
Negative amortization occurs when loan payments are less than the accrued interest for that period. The unpaid interest is added to the principal balance, causing the loan balance to grow over time even though payments are being made. This occurred with some payment option ARMs.
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